Let’s face it.  Credit card companies have lower approval ratings than the current president.  They are the people who charge us absurd fees and sometimes astronomical interest rates.  However, they also provided a necessary evil for many consumers, not to mention a multitude of ways to save money.  Yes, I said it.  Credit card companies do help people save money.

How?  For starters, the 0% introductory rates on purchases and especially balance transfers have helped keep a lot of money in savvy consumers pockets.  And for those who pay their credit cards in full every month, cashback and other rewards credit cards actually earn consumers money. 

However, it is easy to be unsympathetic to credit card companies, if not downright pleased to read about their troubles.  Unfortunately, what we all dislike about credit card companies will ultimately hurt everyone with plastic in their wallet.

Yesterday, Fitch Ratings predicted credit card losses could hit new highs in 2009 (see http://www.reuters.com/article/companyNews/idUKTRE4AB0DG20081112?symbol=DFS.N).  If, and to what extent, these losses occur will have a tremendous impact on the wallets of all credit card users.  Here are just a few examples of how losses at credit card companies can impact your life:

1.)  The End of the 0% Era:  Over the past five years, getting a 0% APR credit card has not been a difficult task.  However, these days of “free money” may disappear faster than Lehman Brothers.  In particular, the 0% balance transfer has helped countless consumers save hundreds, if not thousands of dollars a year on interest.  Without this refinancing safety net, many consumers will find it harder to get out of debt.

2.)  The Return of the Annual Fee:  Presently, the majority of credit cards charge no annual fees.  Those that do are generally tied to rewards programs that offer benefits such as frequent flyer rewards.  However, consumers who pay these fees do so out of choice, not necessity.  Soon, choosing to have an annual fee may not be an option.

3.)  Higher Fees & Interest Rates:  You think late and over the limit fees are high now?  In a year, we may be fondly remembering the days of the $29 late fee.  And interest rates?  How does 22% sound?  Many consumers with above average credit may find themselves unable to get better rates.

Of course, the scenarios above are all hypothetical.  The recession could be less severe than expected.  Banks may satisfy their hunger for money with our taxpayer funds.  Or, in what I consider a best case scenario, money will start growing on trees.

Unfortunately, there is little evidence to support any of these options, although I did receive an email about a money growing tree in Nigeria.  All I had to do was wire $10,000 to a numbered bank account to get the map.  I’ll let you all know how my money tree search goes, but in the meantime, the best we can do is hunker down, take advantage of 0% interest rates while they exist, and a shed a collective tear for credit card companies, before they make us cry with higher fees, absurd interest rates, and credit limits that won’t cover dinner for four at the Olive Garden.

For many months, credit card companies have been making it more difficult for consumers to gain access to credit.  At the same time, they have been reducing credit card limits substantially.  In fact, in a recent Federal Reserve consumer credit survey, it was reported that 60% of credit card companies cut credit limits on less than prime borrowers.

Many had been hoping the “bailout plan” would help ease the credit crunch and encourage banks to lend to consumers.  Unfortunately, however, that seems like a fantasy.  Early this week, a J.P. Morgan Chase official was quoted as saying, “loan volume will keep going down as we continue to tighten credit.”  This is not good news, as Chase is one of the nations largest credit card issuers.

As banks tighten the reigns on credit, consumers may ultimately find themselves in  what is known as a “negative feedback loop.”  In essence, this is a scenario in which, for example, having a lower credit limit negatively impacts your credit score, which in turn makes it more difficult to get new credit, which in turn leads to higher interest rates on everything from credit cards to mortgages. 

These types of scenarios could ultimately make this credit crunch a credit crisis for many consumers.  The banks, of course, will profit.  When a person whose credit score has been decreased because of a credit limit cut applies for a mortgage, the same bank that cut that person’s credit limit can charge them more for a mortgage.  After all, that person does have a lower credit score.

The losses incurred by banks because of their reckless lending are being paid for with American tax money.  That’s enough to irk those of use who have been responsible with our finances.  But now, it appears the banks are once again operating out of fear and greed, and responsible consumers will continue to foot the bill for the mistakes of the banks.

When it comes to credit cards, and in particular to credit limits, there are very few remedies consumers can take to prevent banks from assaulting their credit scores.  However, one thing worth considering is applying for a new credit card to increase your available credit limit or to transfer your high interest balance to a 0% credit card.  A move such as this might not only save you money on in the short term, but help keep your credit score high, and thus lower the cost of borrowing for other financial products.  For more information on 0% credit cards and balance transfer credit cards, please use the left navigation to review and apply for credit cards online.

In an extremely surprising move that I must stress is EXTREMELY SURPRISING, Bank of America extended the introductory APR on balance transfers on a number of their credit cards to 15 months.  As most credit card companies have been cutting back on the duration of 0% APR balance transfer offers, Bank of America’s out of left field decision to increase introductory periods in the midst of a consumer credit crisis seems absurd.

That said, it is now possible to get a 0% APR for 15 months on balance transfers.  This is good news.  However, this sudden change of course may not benefit most people searching for a 0% APR balance transfer.  Why?  In all likelihood, Bank of America will only grant this 15 month 0% APR to individuals with the highest credit scores.  The majority of consumers, even those with good credit, may not benefit from this new offer at all.

And there’s also a potential rub.  In a recent SCC article, “Will You Pay for Credit Card Company Mistakes? Of Course!,” I discussed a number of ways that consumers will foot the bill for the mistakes of credit card companies.  One of the issues discussed was how reducing credit limits hurts credit scores.  Another way credit scores can be adversely effected is by applying for credit cards.  For the most part, this is not a major factor.  However, if you apply to get a 0% APR for 15 months and are not approved and then apply for a different credit card, it may appear that you are desperate for credit.  This may, in turn, cause your other credit card companies to raise your interest rates or reduce your credit limits, thus sticking you in what’s known as a negative credit loop.

Until our site has collected enough data on the performance of these extended 0% APR offers, we advise consumers to proceed with caution.  However, if you have excellent credit, getting a 0% APR for 15 months is probably within your reach.

For more information on Bank of America credit cards and 0% balance transfers, please use the left navigation to review the appropriate sections in the credit card section of Smart Credit Choices.

Although the government is doling out taxpayer money to ailing banks to help alleviate the credit crisis, consumers will probably end up paying more of their own money to their credit card companies.  Stories asserting that a new crisis is brewing in credit cards are everywhere.  And while some may exagerate the dangers a credit card crisis poses to the overall economy, there is more than a shred of truth to this common theme:  that credit card companies will be charging many of us more to borrow money.

In an extremely pessimistically titled BusinessWeek article, “The Next Meltdown: Credit Cards,” the author explores some of the factors that will contribute to future issues for consumers.  The most frightening of which is the percent of credit card users who fall into the sub-prime category:  30%, or nearly three times the percentage of sub-prime mortgage loans. 

Bailing out banks and subprime borrowers has cost taxpayers close to a TRILLION dollars, and subprime mortgages only make up 11% of the mortgage market.  However, the credit card market is significantly smaller than the mortgage market, so the banks can rely on their customers to help pay the bill for their reckless lending.

How will we pay for the reckless credit card lending of banks.  To begin, many consumers have seen their credit limits cut, a move the banks have taken to “reduce risk.”  While clearly a nuisance, this is more of a problem than many realize.  Credit scores take into effect the percentage of available debt you use.  Thus, if you had a $2,000 balance on a credit card with a $10,000 limit, your credit score would reflect this as a positive sign.  However, if your limit is then cut to $3,000, you will appear to be a riskier consumer, your credit score could decrease, and you could end up paying more for products offered by your bank, such as a mortgage or a car loan.

Additionally, if one credit card company drops your limit and you appear, on paper, to be maxing out your credit lines, the other credit card company may opt to “re-price” your account.  Re-pricing is a risk management tool that allows banks to make offers you should, but often are unable to refuse.  Essentially, when a credit card company decides to reprice your account, you will be notified by mail that you have two options:  close your account and repay it at the current interest rate or keep your account open, but pay a much higher interest rate.

Again, this leads to a vicious cycle.  Close your credit card and you have less access to credit.  Plus, you now have one less open credit card account on your credit report, which could in turn decrease your credit score.

Are you dizzy yet?  I sure am.  And the worst has yet to occur.  Soon, it may not be possible to get 0% APR credit cards to transfer those high interest balances too.  And, although we will all be paying through the nose, the credit card departments of the banks will continue to produce profits.  Of course, one could choose to be optimistic.  All you need to do is hope that everyone writing about the credit card industry is completely wrong!

Not too long ago, it was impossible to open the mailbox without getting bombarded with offers for 0% APR credit cards.  Today, its rare to find one every few weeks.  While this development may be great for trees, it is yet another sign that the credit crunch is hitting the wallets of everyday consumers.

At this time last year, throwing out those once annoying letters imploring us to save with a 0% APR on purchases and balance transfers for a year was a daily practice.  Sure, most of us ignored them.  However, they served as a reminder to many to think about the high interest rates they were paying on their credit cards.  For those who took advantage of the offers, a little piece of junk mail may have provided a few hundred or a few thousand dollars in interest savings.

As the credit crunch has worsened, credit card companies have severely cut back on the availability of easy, 0% financing.  However, it is still possible to find these deals online-for the time being.  For how long and to what extent major credit card companies will continue to offer 0% APR deals is a big unknown right now.  What is known, however, is that credit card companies aren’t going out of their way to get you to switch your debt to their credit cards.  And many want to lower your existing credit limits.

The best solution to the chaos in the credit and financial markets is to think like a Boy Scout, i.e. BE PREPARED.  If you are carrying a balance on a credit card with an interest rate in excess of 10%, do a 0% APR balance transfer.  If you plan on making new purchases you won’t be paying off immediately, apply for a 0% APR credit card.  And if you want to make sure you have credit available when you need it, apply for an extra credit card just in case.

The future of credit card lending is uncertain.  However, by acting now and getting the right credit card, you can prepare yourself for the days to come.