'Good' credit card users getting more attention from credit industry
For the longest time, it was common knowledge that credit card companies adored customers who were actually terrible with their money. You know, the person who often paid late and kept a high balance but continued using their card anyway. A customer like, well, what I used to be, when I was mired beneath a mountain of debt.
Meanwhile, the fiscally responsible customers, the ones who paid off their monthly balance on time and had no or little revolving debt, didn't get much love from the credit card companies.
But that may be changing, theorizes Ben Popken in a post for The Consumerist. He predicts that the credit card companies are going to be more aggressively courting their good customers, more than their bad ones, because their good customers are still cash cows due to the interchange fees that the companies gather every time anyone uses their credit or debit card (if the debit card gets used like a credit card).
"Look to be wooed with offers for rewards cards programs," predicts Popken, "and for these rewards programs to be less stingy, like 5% cashbacks, flexible rewards that don't expire and increased service."
Which means the world is no longer upside down. After all, that's really how it should be: credit card companies pursuing the people who can afford to use them.
So is Popken right? And does this mean everyone who's responsible with their credit cards should start using them more in order to reap the rewards benefits?
Wanting to get a personal finance expert's opinion on the matter, I sought out Beverly Blair Harzog, a well-respected personal finance author ("The Complete Idiot's Guide to Person-to-Person Lending"). She recently took on the job of spokeswoman for CardRatings.com, a credit card comparison site, and I figured she'd have an interesting take on the topic.
"The revolving debt folks aren't going to be the cash cows they used to be," Harzog agrees, "since credit card issuers can no longer implement sudden rate hikes and various fees."
But if you're mired in debt, don't worry: You're still appreciated. Harzog says that if you have revolving debt but are still paying your bills on time, the credit card company will be pleased with you because they're making money from your transactions. "Granted," she says, "it's not as much revenue as before the Credit Card Act."
As for the people with excellent credit, based on what Harzog is saying, I wouldn't start maxing out your credit card or carry any extra debt you can't quickly pay off.
"One thing we'll probably see is that those with good credit won't get the lower rates they once did," says Harzog. "This way, the issuer can have low-risk customers and still make up some lost revenue. Customers, no matter what their credit rating, might find that reward programs are cut back, not enhanced."
At this point, nobody knows for sure what will happen. But I think Popken's probably correct that there's a good chance rewards programs could get better. Last year, credit cards were unveiling quite a few impressive rewards programs for the very affluent, and they're probably going to want to continue to do everything they can to keep their least risky customers -- and keep them purchasing and driving up those interchange fees.
No matter what happens, Harzog advises, "Even if someone has their credit balances under control, it isn't an issue of whether you should use your card more. Consumers need to be proactive and protect themselves. It's never been more important to read every statement that your issuer sends. Some issuers are now using 'inactivity fees' as a way to generate revenue from customers who don't use their cards frequently. These changes can be avoided if you use your card periodically, but if you don't read your statements, some of these charges might slip by you."
The bottom line is, nothing's really changed since the Credit CARD Act was instituted on Feb. 22. Not yet, anyway. If you have a credit card, even if you're extremely responsible and you pay off your bills on time, you should still be cautious when it comes to using it. But you knew that, anyway. After all, that's your hallmark -- you're financially responsible.
Geoff Williams is a frequent contributor to WalletPop. He is also the co-author of the book "Living Well with Bad Credit."