As the credit card offers fill your mailbox and you see more TV ads for credit cards, you may think that the credit card issuers are looking for new customers. And you're right. If 2011 wasn't your year for credit, 2012 might be better.
We talked to credit card experts to find out what consumers can expect in 2012 in terms of lending standards, rewards, debit cards and other forms of payment.
How's your credit?
"Lenders and issuers will still be strict with underwriting, but not as strict," says John Ulzheimer, president of consumer education at smartcredit.com. "A consumer with a FICO 600 score will get decent credit card offers."
Ulzheimer analyzed recent data from FICO, which shows that credit scores have been going up for more people. "People have been making changes in how they manage credit, which is what has caused the large movement in scores," Ulzheimer says. "They've been paying down credit card debt and loans, and maybe they got something negative off their credit report."
"Banks have been increasing their offers of credit," says Dennis Moroney, research director at the Tower Group, an industry consulting firm based in Boston. "The issuers have been modestly going into lower-band credit scores, to people with a lower income."
"It's interesting how quickly the rewards programs have ramped up since the recession," says Curtis Arnold, founder of CardRatings.com and a consumer advocate. "The rewards credit standards may be a bit looser for those with lower credit scores, but those cardholders will have higher rates."
"The issuers are looking for someone who will be an aggressive charger," Arnold says. "That may be more important than the credit score."
Rewards credit cards are still the most popular type of card. "Seventy-eight percent of offers are rewards now," says Moroney, "whereas it was down in the 50s in 2009. Banks want to develop a relationship with customers and have them use more products, especially a checking account."
Expanding the banking relationship may be one reason that the 0 percent balance transfer offer is making a comeback. "The zero-percent balance transfer offers are amazingly aggressive," says Arnold. "A year ago there were hardly any, then there were a few with a six-month range, and it's now going up to 18 months. The length of these offers will continue to expand."
"The big drawback to the great zero-percent offer has been no cap on the fee, but fees may start to come down" in 2012, Arnold says. "Three percent will be typical. And maybe the fee cap will come back too."
More cash back
"Cash-back rewards will still be king," says Arnold. "The next threshold in rewards will be higher cash-back rates. Capital One introduced 1.5 percent cash back with its Capital One Cash MasterCard." (Editor's note: the Capital One Cash MasterCard offer has expired and is no longer available.)
"Other issuers will meet the bar that Capital One set," says Arnold. Blue Cash Preferred Card from American Express offers cash back rewards with no enrollment required, the same great reward categories year-round. Terms and limitations apply. While other issuers offer category rewards which are bonus rebates in rotating categories such as home improvements, gas, restaurants and clothing. You will need to sign up each quarter and earnings may be subject to maximum spend limits.
Perk me up
Other offers to take a look at are travel or airline cards that offer perks. "Premium perks that have been associated with high-fee charge cards will be more commonplace for the average Joe," Arnold says. "No foreign transaction fees, covering baggage fees, priority boarding – these will appeal to consumers tired of being nickel-and-dimed with junk fees."
"It would be fun to be in the marketing department of a credit card company now," says Ulzheimer. He cites several reasons why we're seeing so many aggressive offers: "The cap on debit card fees has led banks to encourage consumers to stop using debit cards and use credit cards instead. We just went through a migration away from banks to credit unions. In six weeks, credit unions say they've gotten 650,000 new customers. So the issuers are trying to refocus and attract us to the big banks. Banks want consumers to say, 'Wow, look how good that offer is.'"
"It's a great time to be a consumer," Arnold says. "If you have had an old card for umpteen years, you should look around and see what you can get, if your financial house is in order. Look for a better deal."
Death of debit rewards?
The debit card fees that were tested by a few large banks created a storm of criticism from consumers, and all of those banks have now retracted those fees. "Debit cards had negative publicity, which helped move people more to credit cards," Arnold says. "But debit rewards programs are a permanent casualty of everything and legislation."
"Debit rewards will go away unless they're integrated into duo cards or are part of a larger banking relationship," says Moroney. "The American consumer has gotten comfortable with debit. GenX and GenY grew up with debit. The duo cards may become more common so that at the point of sale, the consumer makes the choice."
Credit card security
Mobile applications are being developed for every kind of product, and credit cards are not being left out. But will consumers bank by cellphone? Ulzheimer doesn't think so. "There are plenty of efficient ways to move money from one place to another, ways that are more secure than using the cellphone. Mobile banking will die a quick and bloody death as soon as there's a major hack into a network. And no one is immune to hacking."
Security remains a big concern in the banking industry, Moroney says. "Chip-and-PIN cards are gaining momentum with Visa stepping in. Card-present fraud is not a big deal here, and the chip is intended to protect against that. And online security is not a concern. Chip-and-PIN cards are happening, but it will be slow. Merchants don't want to pay for new terminals to accept the cards."
Another worry in the credit card industry is how they will market their brand on a mobile device. "They've made an investment on the card landscape with their brand. With mobile, all that goes away. What does that mean for banks? Are they going to put their icon on a screen?"
The question for credit card issuers, says Arnold, is "How do you acquire new customers in a saturated market? You do anything to make your card stand out to consumers."
For consumers, 2012 may be the year to get back into credit cards.