6 Credit-Card Traps to Avoid Now

Making the switch “was a real stampede,” says Linda Sherry, a spokeswoman for consumer advocacy group Consumer Action, which publishes a comprehensive annual study on credit-card trends. The majority of issuers switched over the past 12 months and many did just weeks before a provision of the new credit-card law that requires 45-day notice of any change of terms went into effect, Sherry says. (Click here to read more on rate-formula swaps.)

The new credit-card law may have lead banks to reconsider over-limit fees, as exceeding one’s limit will soon become an opt-in feature – but they’re reintroducing others. “The model is moving toward what was popular in the 1980s: higher interest rates and annual fees,” says Dennis Moroney, a senior analyst for financial-services research firm TowerGroup.

Offers for fee-based credit cards mailed to consumers rose significantly during the first quarter of this year to 27% of all offers, up from 18% a year ago, according to Synovate Mail Monitor, which tracks credit-card mailings.

An annual fee can be a big turn-off for consumers. To avoid user backlash, some issuers will get creative with how they charge usage fees. One possibility: tying fees to card usage. “The issuers may try to incent you to become profitable and if you don’t, they may introduce a fee,” Robertson says. In other words, you may be required to exceed a certain spending threshold to avoid an extra charge. That’s a lose-lose situation for anyone carrying a balance: upping your card usage will cost you more in interest payments, while keeping it low will cost you an annual (or monthly) fee.

It’s no secret that card issuers have cut back on new-card offers. But if you’re a customer of good means and credit, chances are those envelopes will keep coming. As card issuers seek ways to become profitable, they’re focusing on their best and most affluent customers. JP Morgan Chase (JPM), for example, recently launched Chase Sapphire, a rewards card designed specifically for affluent consumers and has been mailing 0% APR balance-transfer offers in an effort to grab market share from its competitors.

“We might be seeing a fundamental shift in which banks will approach managing the relationship with the customer and it will be on a household basis rather than a product basis,” Moroney says. “What’s the risk of the household? What are the other products we may sell them?”

Rewards programs are expensive to run, yet they are so popular with consumers that getting rid of a program could create a public disaster for any issuer. Some are getting around the problem by introducing surreptitious changes, such as fees for redeeming rewards, making rewards more expensive, or shortening their shelf life. “Think about what the airlines did with the frequent-flier programs,” Moroney says. “They’ve created more challenges for getting free flights.” Read about some of the latest rewards programs’ cutbacks here.