If you’re one of those highly empathetic people who tend to cry at sad movies (and, if you are, you really need to stock up on handkerchiefs before you see War Horse) then you may have been shedding tears for some of your favorite credit card companies. If so, you can dry your eyes. The parent companies of Chase and Citi may have published less than impressive fourth-quarter results recently, but it’s not their card divisions that are causing the problems. They’re doing just fine.

Credit card companies flourishing

Take the Chase card division as an example. According to a Jan. 13 press release from JP Morgan Chase, it issued new credit cards to 8.5 million people in 2011. Meanwhile, its charge-offs (when uncollectible debt is written off the books, and passed on to collection agencies and the like) were just 3.27 percent in the fourth quarter of last year, down from 5.73 percent in 2010, and its delinquency rate (when customers are 30 days or more behind with payments) was 2.32 percent compared with 3.23 percent the previous year.

Those may be pretty good figures, but they don’t mean that executives at Chase and elsewhere have room for complacency. By some measures, business is down. However, look on the bright side: it’s card issuers’ responses to the troubling aspects of their results that are creating some good news for consumers like you.

Credit card interest rates down, offers up

In particular, card issuers would love their customers to get back into the habit of carrying forward balances. That may explain at least in part why credit card interest rates have begun edging down. At the time of writing, IndexCreditCards.com’s rate monitor puts the average for all sorts of cards at 16.65 percent, which is still high, but a little lower than it has been recently.

At the same time, many card issuers are mailing out many more credit card offers than they have in recent years. Chase says its non-interest expenses shot up by 8 percent ($158 million) from the previous year in the division that manages cards, and attributed much of that to increased marketing costs.

Rewards credit cards boost cash back bonuses

It’s not just in terms of the number of solicitations mailed that card issuers are making big efforts. The quality of each credit card offer is also tending to improve.

In particular, the number of enhancements to rewards credit cards‘ programs in recent months has been remarkable, as the most casual trawl through the IndexCreditCards.com news blog would reveal. At the same time, sign-up bonuses, which provide a one-off cash gift for new cardholders, are also in evidence. The Chase Freedom Visa Card and the Citi Dividend Platinum Select Visa Card are two current examples, both offering $200 cash back after first use of the card.

If you have good credit, you’re in the enviable position of being in the target market for credit card companies that are very keen to have your business. So now’s the time to dry your eyes, and seek out the best deals you possibly can.

Balance transfer credit cards: two caveats

Before you get too excited about that weight being lifted from your shoulders, you need to heed three warnings:

1. As with most credit, you can’t always get it if you really, really need it. Credit card companies aren’t crazy (mostly), and they won’t lend to you if they think you are already in financial trouble. The stronger your credit report, the better your chances of approval for the card you want.
2. Don’t see balance transfer credit cards as additional lines of credit. It’s a classic mistake to transfer a balance and then run up others on the cards you zeroed. Instead, use the vacation from interest payments to more quickly pay down as much debt as you can, including that on the new card.
3. Most of these cards charge a one-off fee (often 3 percent) on the amount you transfer. That’s usually added to your new balance, and it’s rarely enough to undermine the economics of the deal, but unless you choose one of the fee-free offers described below, you ought to build it into your calculations. Use one of IndexCreditCard.com’s credit card calculators to model your savings and plan how you’re going to pay down your balance.

Balance transfer credit cards without the balance transfer fee

Sometimes, credit card companies run special promotions during which they waive balance transfer fees. They’re not always available, but you should invariably check for them before you apply for one of these credit cards. Right now, there are at least two such offers, and both are time-limited.

Discover has signaled that its offer is likely to expire on Jan. 31, so don’t delay if you’re considering making an application. Here are some of the headline points for this offer, which is on the Discover More Card:

• No balance transfer fee, annual fee or rewards redemption fees.
• Introductory period of 12 months during which there’s a zero-percent APR on both balance transfers and purchases.
• Discover’s usual rewards program, with cash back that can be earned based on eligible purchase categories.

Of course, before you make any credit card application, you should comparison shop online. If you were to do so at the time of writing, you’d find that Chase is offering a similar deal on its Slate from Chase card. There are no balance transfer or annual fees, and the introductory 0-percent APR lasts for 12 months if you have excellent credit, or six months if you have average credit.

Again, this offer is flagged as being available only for a limited time. So if you’re looking for a holiday hangover cure, you’d better act now.

Credit card contracts impenetrable

Of course, everyone knows that you shouldn’t sign anything that you haven’t read, but that piece of wisdom tends to go out the window when people make credit card applications. Most just cross their fingers that the agreement doesn’t contain outrageous terms, and anyway know that the chances of their successfully negotiating any variation in the standard-form contract are negligible. So nearly all of us simply sign and hope for the best.

Now all that could be about to change. On Dec. 7, the Consumer Financial Protection Bureau (CFPB), a federal regulator, unveiled a draft credit card agreement that it hopes will become a template for future contracts. By comparison with existing documents it’s unrecognizable:

1. It’s short: just 1,100 words across two pages, rather than the 5,000 or so that current contracts average.
2. It’s easy to read: no long words or incomprehensible legal jargon — just plain English.
3. It’s simple to navigate: you can find everything you need to know easily, thanks to its easy-on-the-eye layout.

More than just credit card rates

The top half of the first page concerns different credit card rates and other costs that apply in different circumstances: balance transfers, cash advances, foreign transaction fees, introductory APRs and so on. The lower half has four headings:

1. What do I have to pay and when?
2. What if I pay late?
3. Special promotions
4. How is interest calculated?

Turn over, and there are details of the circumstances in which credit card rates and other charges can change, followed by “Additional Information,” which includes:

1. The company’s rights
2. The consumers’ rights
3. How disputes should be resolved
4. Other terms and conditions
5. Privacy

Credit card companies cautiously welcoming

Credit card companies aren’t always welcoming of government interference in their businesses, but their initial reaction to this suggestion hasn’t been wholly adverse. True, some are concerned that a lack of legalese in their contracts could open them up to expensive litigation. But this was how Kenneth Clayton, chief counsel at the American Bankers Association, greeted the CFPB’s proposal in a statement:

For more than 20 years, the banking industry has strongly supported efforts to provide consumers with a short, easy-to-understand summary of their credit card agreement. The model released by the Bureau is a good first step, but could be made even shorter, as well as less susceptible to costly lawsuits and the higher consumer prices that come from them. We look forward to working with the Bureau to ensure disclosures provide exactly what our customers need and want to know, while maintaining consumer access to competition and choice in the marketplace.

Maybe some day soon virtually all of us are going to understand the card contracts we sign.

Credit card companies and sign-up bonuses

As you probably know by now, credit card companies are currently locked in a desperate battle to win market share. This largely explains the recent rush of enhancements to rewards credit cards. And it may also be behind sign-up bonuses, which card issuers pay on some products simply to say thank you for becoming a new customer and for spending a certain amount on your new plastic.

Right now, at least two cash back credit cards are offering a whopping $200 in sign-up bonuses, and that’s in addition to the usual rewards (up to 5 percent cash back) you would normally receive. But, before we explore those cards, here are two caveats:

1. You’re likely to need excellent credit in order to qualify for either, so don’t bother reading further if you’ve had financial problems recently. It’ll probably only make you feel worse.
2. Deals like these are seductive. Don’t apply if you already have significant credit card debt, or if you’re one of those people who can’t resist temptation when it comes to spending.

Cash back credit cards from Chase

The first of today’s cash back credit cards to offer a $200 sign-up bonus is the Chase Freedom® Visa card. To get the bonus, you have to spend at least $500 within the first three months that you have it, which may not be a problem, given the time of year.

Chase pays 5-percent cash back but only for purchases (capped at $1,500 a quarter) made within revolving categories that change every three months. So, for example, during the current (October-December) quarter, that 5 percent is paid on purchases made in restaurants, department stores and movie theaters, as well as on charitable donations. Generally speaking, you get 1 percent on everything else, though you can get up to 10 percent if you shop at certain retailers through Chase’s online portal.

There’s no annual fee on this card, but interest rates, which are variable, are currently 15.99 percent to 22.99 percent annual percentage rate (APR), depending on your creditworthiness. That isn’t uncompetitive, but it’s hardly generous either. It might be best to charge to this one only purchases that you know you can pay down quickly, and to use low interest credit cards for everything else.

Cash back credit cards from Citi

The second card (only alphabetically) is the Citi® Dividend World MasterCard®. The sign-up bonus deal is precisely the same as Chase’s: $200 back if you spend $500 during the first three months after your account is opened.

And its rewards are very similar too. Its bonus categories also pay 5 percent (1 percent on everything else), and change each quarter. Citi’s choice of categories for the current quarter seems even more seasonally appropriate than Chase’s:

1. Department stores
2. Clothing stores
3. Electronics stores
4. Toy stores

Citi caps the rewards you can earn in any one calendar year at $300, but makes an exception for purchases made through the Citi Bonus Cash Center, where they’re unlimited. Like the Chase card, Citi’s card has no annual fee, and, interestingly enough, both Chase and Citi charge precisely the same credit card rates on these two near-identical products. So the same suggestion applies about not using it for purchases that you can’t pay down quickly.

The fact these two credit cards are so similar may relieve you of one holiday headache: choosing which to apply for. Just toss a coin. Heads you win, tails you win.

This content is not provided or commissioned by any company mentioned in this post. Opinions expressed here are author’s alone and have not been reviewed, approved or otherwise endorsed by any such company. This site is compensated by companies referenced in the blog posts through advertising, affiliate programs or otherwise.

Low interest credit cards versus rewards credit cards

Wow! That’s a colossal and genuinely shocking figure. And it suggests that huge numbers of victims may be forced to fall back on their plastic just to restore their lives to something approaching normalcy.

If you’re one of them, you’re likely to be pretty short on silver linings at the moment, and might be attracted by even the minor one offered by rewards credit cards. While you’re spending all that money, you may think, you might just as well get some cash back, travel miles, points or whatever.

Good idea. But it may not be the smartest move for all your purchases. For many of those, you should probably be pulling your low interest credit cards from your wallet instead.

Credit card rates, rewards credit cards and credit card calculators

That’s because, on average, interest rates are higher for rewards credit cards than those for ordinary ones. Indeed, at the time of writing, IndexCreditCard.com’s credit card rates monitor says that the average annual percentage rate (APR) for consumer non-rewards cards is 14.72 percent, while that for consumer rewards cards is 17.30 percent.

You’d need a spectacularly generous rewards card for it to make sense for you to charge items to it that you know you won’t be able to pay down for a long time. Generally speaking, the rule is that it’s good to use rewards credit cards for purchases that you know you can clear quickly, and low interest credit cards for those that are going to take you longer.

You can use credit card calculators to see how long it should take you–and how much it should cost you–to pay down balances at your own cards’ different interest rates. Then you can work out what your personal strategy should be.

Balance transfer credit cards

If your credit’s good and you’re having to load your cards a lot post-Irene, then you might want to consider applying for a balance transfer credit card. There are two reasons why this could be a good idea:

1. A number of these–mostly from Citi–offer zero percent APR on transferred balances for 21 months. Others make a similar offer for 15 months. That could provide you with just the breather that you need to get over the hurricane.
2. Your credit score could suffer if the balance on any of your cards is higher than 30 percent of its credit limit. So even if you can manage paying down your credit card debt easily, you could be better off spreading the load across more plastic.

Credit card companies human!

One tiny positive revelation that emerged in the aftermath of Irene is that credit card companies are human. That’s not necessarily in the sense that the U.S. Supreme Court thinks, namely that corporations are people. No, it’s in the sense that they’re run by real-life, breathing and occasionally sentient human beings. Many of them announced that those affected by the hurricane could see their late payment and/or other penalty fees waived, though only for a strictly limited time. Awww. Ain’t they sweet?

The great debate over swipe fees

On Friday, The Augusta Chronicle quoted David Oliver, a spokesperson for Georgia Bankers Association, as saying: “As a result of the Dodd-Frank Act, the cost of debit card payment services has shifted from retailers and merchants to consumers.”

And that’s certainly one valid way of looking at it. Another is that few merchants ever shouldered the burden of swipe fees themselves, but instead raised prices to cover them. And those higher prices were paid by all customers–including poor, unbanked ones who use cash. Looked at that way, you could see such fees as a sort of private-sector sales tax by which the poor subsidized better-off people’s free banking and rewards programs.

Which view is correct? You pays yer money and you takes yer choice, though you’d probably be better off using a credit card when you do so.

Credit cards are better

That’s because, generally speaking, credit cards have always been the best way to pay for purchases. Toward the end of last year, this credit card news blog identified 7 ways in which credit cards beat debit cards, and three of those were:

1. Better statutory protections if you’re a victim of fraud
2. Better statutory protections if you need to dispute transactions because of shoddy, misdescribed or undelivered goods or services
3. Better benefits from rewards credit cards

As banks scale back or abolish debit card rewards, that last point is likely to become even more significant. That’s because rewards credit cards (indeed, all credit cards) are exempt from the Dodd-Frank Act’s provisions, so there’s no reason why they shouldn’t remain as generous as ever.

Rewards credit cards improving

Indeed, as this blog recently pointed out, the rewards on offer from many credit card companies are actually getting better. In particular, recently launched cash back credit cards and travel rewards cards often offer superior benefits compared with older ones.

Among the new cash back credit cards now available are the Capital One Cash card, and BankAmericard Cash Rewards™ card. Recently launched travel rewards cards include the Citi Executive^SM / AAdvantage^® World Elite^TM MasterCard^®, and the United MileagePlus^® Explorer Card from Chase.

Secured credit card at risk?

On the same day, Capital Bank, N.A. of Rockville, Md., (no relation to Capital One Bank) announced that it was “to assume all of the deposits of Public Savings Bank.” However, the future of the failed bank’s credit card business is unclear. At the time of writing, the card’s website says:

Thank you for your interest in the Open Sky Secured Visa® Credit Card. At this time Capital Bank has stopped accepting new applications for the secured card product. We have not discontinued the product and this is a temporary action as we work through efficiencies related to the acquisition of the program from Public Savings Bank.

Reading between the lines, there’s a notable lack of any bankable (if you’ll forgive the pun) commitment there to the product’s future, although perhaps enough reassurance to keep existing customers from panicking.

Why secured credit cards are important

This is the second heart-stopper for fans of secured credit cards in less than a month. HSBC’s excellent Orchard Bank-branded secured products seemed similarly threatened right up until Capital One bought them a couple of weeks ago. Luckily, the website is currently taking applications for Orchard Bank Classic Cards, Orchard Bank Online ecosmart MasterCards, Orchard Bank Visa® Cards and the Orchard Bank Secured MasterCard®.

Secured products can be highly effective vehicles for those who can’t get approved (because their credit reports are either patchy or non-existent as a result of financial problems or extreme youth) for mainstream, unsecured credit cards. Generally speaking, cardholders have to deposit upfront a sum, often $300-$500, in a savings account, certificate of deposit or similar, which then becomes their credit limit.

However, the best secured credit cards (not all of them) report activity to the three big credit bureaus, which gives cardholders a chance to build or rebuild their credit. And, after some months or years of responsible behavior, many issuers are willing to replace the plastic with a normal unsecured credit card.

Credit card companies and subprime borrowers

This represents an important opportunity for those whose credit card applications for mainstream products are likely to be declined. Many subprime borrowers have found their credit reports damaged through no fault of their own, perhaps as a result of illness or an unexpectedly long period of unemployment. Their problems are often short-term, and may now be entirely behind them. They deserve a second chance.

At a time when many credit card companies are again irresponsibly issuing plastic to risky subprime borrowers (see Credit card lending: bring on the tripping goldfish), there surely should be a greater role for secured cards. They can help and protect borrowers, lenders and the economy.

The card business is under strategic review. We haven’t said any more than that, so it’s jumping to conclusions to say that we’re going to sell or close. We are evaluating a number of options… to determine the long-term future of the card business within HSBC.

Credit cards from HSBC could be at risk

Although Sherman’s carefully measured comments were undoubtedly true, IndexCreditCards.com warned at the time that HSBC’s chairman had earlier in the year announced a new direction for the global business. This could see the bank “divesting itself of assets (such as its U.S. credit card operations) that aren’t essential to the new strategy in order to fund acquisitions that are.”

The likelihood of HSBC selling or shuttering those operations grew earlier today when the bank unveiled a $1 billion deal to sell 195 branches in its New York and Connecticut network. Bloomberg reports that a further 13 HSBC branches in Connecticut and New Jersey are due to be closed by next year.

This morning, The Guardian (a newspaper that, like the bank itself, is based in London, England) suggested that HSBC has earmarked its retail businesses in 20 countries (out of the 87 nations in which it operates) for sale or closure. The report went on to call the North American operation “troubled,” and said that it was “the smallest generator of profit” for the entire group. So the chances of HSBC moving out of this market seem high.

Credit cards under many brand names threatened

What might this mean for holders of HSBC credit cards, which, besides those under the HSBC Premier name, include some or all of those branded Orchard Bank, GM, Sachs, Best Buy and Neiman Marcus, among others? Well, a sale could mean very little change indeed.

But closure could see cardholders losing their cards and therefore access to new credit. However, repayments of any then-existing credit card debt would likely remain in line with current card agreements.

Time to make a credit card application?

Existing users of all these branded cards may well be feeling nervous by now. To be fair to HSBC, there is a good chance that it would be able to sell its U.S. operations. At the moment, credit card companies generally are highly profitable, and it seems likely that one of them would pay a fair price to get its hands on this extra market share.

However, there remains a real possibility of closure, and this could eventually leave holders of the bank’s many cards high and dry. If you’re one of them, you may well wish to start shopping around for new plastic now. But before you complete a credit card application, be sure to read 5 ways to pick the best plastic first.

HSBC credit cards galore

HSBC is America’s seventh-largest issuer of MasterCard and Visa credit cards, and its third largest issuer of “private label” cards, those carrying a store or other third-party brand. Its products include cards issued under the HSBC Premier and Orchard Bank names, as well as cards for GM, Sachs, Best Buy and Neiman Marcus, among others.

The company declined to reveal the number of cardholders it services, but said that its “book”, the total value of the balances outstanding on its credit cards, was worth $33 billion in the first quarter of this year.

According to Rob Sherman, HSBC North America’s vice-president for public affairs:

The card business is under strategic review. We haven’t said any more than that, so it’s jumping to conclusions to say that we’re going to sell or close. We are evaluating a number of options… to determine the long-term future of the card business within HSBC.

Spin or reality?

Although Sherman reassures cardholders that “During the review, it’s business as usual for customers,” some industry reporters maintain that the end result of the process is still likely to be either the sale or closure of HSBC’s credit card arm.

The Independent, a U.K. newspaper, reported on a May 11 meeting at which the HSBC’s global chairman, Stuart Gulliver, laid out his new strategy. “Gulliver said he would cut back retail banking and return HSBC to its roots: to finance trade between developed and emerging economies.”

It could be that, in order to achieve those goals, HSBC is considering divesting itself of assets (such as its U.S. credit card operations) that aren’t essential to the new strategy in order to fund acquisitions that are.

Credit card industry doing well

If HSBC’s strategic review does eventually lead to the sale or closure of its American card business, then that realignment of assets would seem to be the only sensible explanation for the decision. It’s unlikely to be for profitability reasons.

Credit card companies Discover and Capital One have both recently published exceptionally healthy results. Indeed, Discover’s net income during the quarter ending May 31, 2011 was $600 million, more than double that for the same period in 2010. Meanwhile, the Financial Times says that Citigroup is reconsidering the disposal of its private-label card portfolio because trading conditions in the American credit card sector have improved so dramatically.

What if you hold an HSBC credit card?

So if you hold an HSBC card, what does all this mean? Well, possibly nothing. The company promises to provide public updates at key milestones during the review process, and it could be many months (Sherman isn’t saying how long it could take) before a decision is reached. And, of course, it’s still possible that nothing will ultimately change.

If a sale is eventually worked out–and The Wall Street Journal says that some believe Capital One is interested–then the impact on customers could be minimal: a different logo on a new piece of plastic.

There could, however, be implications if the business is shuttered. It’s likely that existing credit agreements would remain in force, but cardholders would be unable to draw further on their credit. So should HSBC cardholders now be preparing to make new credit card applications?

Too soon to tell, but on the other hand, it’s never a bad time to compare credit card deals to be sure you’re getting the most from your cards.

A credit card offers protections, but…

This is not to say that you shouldn’t be vigilant in your credit card use. To start with, if your account is compromised, you’re likely to face some hassle, which can be inconvenient. But the real problems arise if you end up a victim of identity theft, which last year cost Americans $37 billion.

Then those hassles can take on mammoth proportions. Your credit report can be ruined, and your credit score can plummet to subprime levels. And a poor credit score is likely to make it harder for you borrow to buy a house or a car, to rent an apartment, to make successful credit card applications. Black marks on your credit can even impact your ability to find a job or get a promotion. Worse, you may well find it hard to prove the negative that you’re not the one who ran up debt in your name.

It would be rare for someone to be able to steal your identity armed just with your credit card details. Normally, a complete hijacking requires at least an address and social security number. However, card information could be a criminal’s starting point, so it’s worth using your plastic with care (see 10 ways to avoid being a victim of credit card crime).

Credit card companies’ roles

So, while you’re doing your bit to protect your identity, how hard are your credit card companies working to achieve the same objective? A new study, published yesterday by Javelin Strategy & Research, suggests that their level of commitment varies considerably.

Javelin didn’t look at “back-office” protections (things like database and network security) because for obvious reasons card issuers keep secret the safeguards they have in place. Instead, the researchers rated companies according to three criteria:

• Prevention–stopping criminals before they start
  
• Detection–identifying fraud while it’s happening
  
• Resolution–sorting out problems after the event

It turns out that most credit card companies are great at resolving issues after they’ve occurred but not so hot at preventing them arising in the first place. Yet Javelin’s Philip Blank said in a press release: “We have found that prevention features offer the highest return on investment, leading issuers to see that it is imperative to prioritize educating consumers on the current technologies needed for protection.”

Javelin made it clear that credit card issuers and users share responsibility for online security:

To find an effective means of ensuring consumers take the proper precautions when conducting financial transactions online, issuers should consider requiring a minimum amount of security software in order to access the full gamut of online financial activity.

Credit card companies: which are best at fraud prevention?

Javelin revealed what it believes are the top-five credit card issuers in identity fraud prevention, detection and resolution. In order of ranking, they are:

1. Discover
2. U.S. Bank
3. USAA
4. Capital One

Regardless of online security measures provided by the credit card issuer, the credit card user can do his or her part by being aware of security risks and taking appropriate precautions when conducting financial transactions online.