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.

A lot has been written recently about credit card companies cutting credit limits.  American Express is one of the companies that has popped up in these discussions, and an article in today’s Wall Street Journal adds an interesting twist to this development.

Over the past few months, the Wall Street Journal, as well as other major media outlets, have covered the cutting of credit limits.  Early speculation, which has been confirmed recently, points to specific targeting of certain consumers in geographic locations that have been hit hard by the housing crisis such as residents of Florida, California, and Nevada. 

The article in today’s Journal goes a bit further.  It suggests that American Express is using proprietary risk management tools to isolate consumers who share general similarities with consumers who have proven a default risk.  What are these similarities that could put you at risk?  One is having a mortgage loan from Countrywide Bank.  Another is shopping at Wal-Mart.  Yes, Wal-Mart.  Apparently, American Express views Wal-Mart shoppers as a risk. 

A spokesman for American Express confirms this shopper profiling to the Wall Street Journal, “If they’re spending in a way that looks like a pattern of other people who had credit trouble before them, it gets added into the mix.”

The Bell family, who are the credit crunch victims in the article, had their unlimited charge card credit limit cut to $1,100 were obviously upset.  The couple had done nothing to draw the attention of American Express; they had not been delinquent on their credit card or late on their mortgage.  They had simply fallen into a category of consumer that, according to computer models, made them a risk.

So what is one to do?  Avoid retailers like Wal-Mart that can provide a little extra savings during tough times?  Spend money on fees and refinance their mortgage, even though mortgage rates might be higher?  Neither option is ideal, let alone reasonable.  The best option for the Bell’s, and anyone faced with a lowered credit limit, is to fight back.  Cut up your old card and get a new 0% credit card.  There’s no reason to be loyal to a credit card company that clearly doesn’t trust you.  And there’s no reason to continue using a credit card that imposes unreasonably low limits on you just because you fit the wrong profile.