The rocky relationship> between Americans and their credit cards may be on the mend but banks shouldn t get too comfortable.
A recent survey from J.D. Power and Associates found consumers overall satisfaction with their credit cards on the rebound in 2010, after hitting an all-time low in 2009. Despite the improvement, cardholders eyes are still roving: The number of consumers who said they definitely wouldn t switch primary cards in the next year fell again, to just 22%, down from 30% in 2008.
As with any relationship, good communication seems to be the key. The improved disclosures about card terms and penalties required by the Credit Card Accountability, Responsibility and Disclosure Act of 2009 seem to have helped consumers better understand their cards, says Michael Beird, J.D. Power s director of banking services. Clearer disclosures are particularly important to people who carry a balance because they re more likely to run into problems, and those consumers reported a greater increase in satisfaction than those who pay their balances off every month, Beird says. The card brands that routinely top the satisfaction survey, particularly American Express, also tend to communicate well with their customers, he says.
Loyalty to a particular card declined among all types of consumers, Beird says. J.D. Power also found a similar dynamic greater satisfaction but less loyalty in its retail banking survey this year, he says. As the economy slowly improves, customers feel that they re in a position now to start seeing if the grass is greener somewhere else, Beird says.
Consumers eyeing new credit cards do have plenty of offers to choose from now, as long as they have good credit, says Brad Strothkamp, a financial services analyst at Forrester Research. Banks have tightened their lending standards, so they re competing more fiercely for a smaller pool of prime and super-prime customers, Strothkamp says. It plays to the customer s advantage, no doubt about it, he says.
The offers may be out there, but opening a new card isn t always the best move. Here are five things consumers who are weighing new card offers should consider before switching credit cards:
Try to work things out with your current card first.
Banks are spending more to market their cards to new customers, so it makes even better business sense to work to hold on to current customers. Consumers with good credit scores should ask for a better interest rate or other improvement in a current card s terms before switching cards, Strothkamp says. My guess is they d bend over backwards to try and save you, he says.
Consumers with poor scores should avoid drawing extra attention to themselves, however, says Gerri Detweiler, a credit advisor for Credit.com. Some people actually come out of a conversation with an issuer with worse terms than they had before, Detweiler says.
Think carefully before closing an old card.
Those who do decide to move on to a new card should still think twice before giving up an old one. Part of a consumer s credit score is based on a credit utilization ratio that considers how much credit is available to a person, and how much of that available credit he s using. Closing a credit card lowers the total amount of credit available, making it look like the consumer is closer to maxing out. Credit bureaus also look at the length of a consumer s credit history, so closing an old account could hurt by reducing the average age of a consumer s accounts.
The impact of closing older accounts will be relatively small for consumers who aren t carrying balances on their other cards, Detweiler says. Anyone who s planning to apply for a mortgage or another important loan, however, should wait to close old accounts until that new loan comes through, she says.
Decide what you want from a new card.
Applying for multiple cards will definitely damage a consumer s credit score. It s better to apply for one card at a time and have an objective for that card, says Beverly Blair Harzog, a spokeswoman for CardRatings.com. It s not like buying a new car. You do want to get a good deal, but you want to get one that meets your specific needs.
Consumers should think through the primary purpose for a new card: whether it s reducing the interest rate on old debt, earning rewards for frequent travel or tracking regular expenses online, different cards will work best for different needs, Harzog says.
Put your best foot forward.
A consumer applying for a new card will want to make a good first impression. Consumers should check their credit reports for errors, and for a sense of what kinds of cards they ll qualify for, before applying for any new cards, Harzog says. Most credit card comparison web sites allow consumers to search for offers that will work for people with fair, good or excellent credit.
Ignore introductory offers.
Hopping from card to card will damage credit scores, so consumers should look past introductory offers to find terms they ll be able to live with for a while, Detweiler says. You don t want to go for a card that offers a great intro deal and then the next thing you know you re ready to cancel again, Detweiler says. When you choose a card, you need to think more like a marriage than just a date."