Personal Finance: Credit card offers are back

Seem like you're seeing more credit card offers lately? You aren't dreaming.

Targeting everyone from teenagers to 80-somethings, credit card companies are cranking out more offers, especially to those with good credit ratings.

Lee Marengo, a retired state employee in Sacramento, said she and her husband have been getting lots of tempting credit card offers in the mail.

A longtime credit card user who faithfully pays off her balance each month, the 84-year-old is getting "wonderful" offers for rewards cards, such as a Chase Visa that dangles 5 percent cash-back on gas, groceries and pharmacy purchases.

Marengo typically only uses one card but, "If something new and better comes along, by golly, I'm gonna grab it."

She's certainly not alone in getting credit card offers.

During the recession, card issuers kept a low profile. They got hammered by record rates of defaults by consumers who couldn't pay off their monthly balances. They also got pinched by new consumer protections in the federal Credit CARD Act that clamped down on late payment fees, interest rates and other charges.

But that's old news. Today, as the battered economy starts to heal, credit card defaults and late payments are lower. Banks have adjusted to the new landscape, amping up efforts to grab new consumers.

"There are a lot more mailings going out. The competition among credit card issuers has definitely stepped up," said Bill Hardekopf, CEO of LowCards.com, an online credit card comparison site. "They are sending out many more solicitations, especially to the most sought-after customers: those with good to excellent credit scores."

The spike in credit card mailings was significant this past year, says Anuj Shahani, who oversees tracking services for Synovate, a global market research firm. Direct mailings from credit card companies skyrocketed from 1.39 billion in 2009 to 2.82 billion in 2010, a whopping 103 percent increase.

"With the CARD Act in place and the economy doing better, credit card mailers have come back with a bang and are making up for some lost ground," said Shahani in an email. "We expect to see a modest rise in mailings for 2011."

Credit cards that offer rebates or rewards are where competition is most intense, says Hardekopf. "Issuers are offering some great deals out there, especially in miles and cash back. That is what excites consumers."

But if you're contemplating a new credit card, do your homework. Here are some tips:

Balance vs. no balance

You have to know which camp you're in, says Tim Chen, CEO and founder of NerdWallet.com, a Redwood City-based credit card comparison site.

If you don't carry a monthly balance, get a rewards card. They typically have an annual fee but offer airline miles, cash-back on purchases (groceries, dining, etc.) or discounts at certain stores.

If you do carry a balance, generally go for cards with the lowest interest rate.

Read the fine print

No matter what kind of card you apply for, be sure to read the disclosures first. Otherwise, you might get hit with surprise fees later. For instance, a company that brags it has no "annual fee," might instead charge an "application fee," says Ken Lin, CEO of CreditKarma.com, a Bay Area-based credit card site.

"If you take 20 minutes to read the disclosures, it can save you several hundred dollars," said Lin.

Watch out for terms/fees

Many new cards entice people to switch by offering to move your outstanding balance to a new card with a lower rate. But those so-called "teaser rates" usually last only six months or so. Or they can disappear entirely and be replaced by a sky-high rate if you fail to make a monthly payment on time.

For instance, let's say you've got a $2,000 balance on your credit card that's charging 20 percent APR. You get an offer to transfer your old balance to a new card that's only charging 6 percent. Sounds good, eh?

But look at the details: There's an upfront fee of 3 percent. On a $2,000 balance, that's $60. "Not the end of the world," notes Lin, but it's still money out of your pocket.

And if you don't pay on time every month, that super-low interest rate could jump to nearly 30 percent, the typical "penalty pricing" rate. In the end, you could be worse off than if you kept your original card.

Choose rewards wisely

If you buy a lot of gasoline, look at a card that pays cash back. Or if you fly for business or vacations and live in a Southwest Airlines city like Sacramento, it might be worth getting the airline's credit card to rack up miles.

But note that some cash-back rewards are capped, say $250 a year for gasoline purchases.

NerdWallet's Chen likes to tell how he scooped up 225,000 airline miles in one year by signing up for three cards: 75,000 bonus miles each for an American Airlines card from Visa and American Express. And a Capitol One card that did a match-my-miles promotion.

And he didn't get hit with annual charges.

"The fees were waived for the first year, so I just canceled the cards after I got the miles."

With his miles he's flying to Greece this summer.

That's not the kind of consumer that credit card companies are looking for, needless to say.

Every time you apply for a credit card, your credit score can get dinged. That's why it's best to do your homework before applying for too many cards. And if you have a card with a long history of good payments, don't cast it aside just because you see a better-looking deal out there. Hang onto it for the long-term benefit to your credit score.

Best tip: Always pay your credit card bill on time. "If you do, you're gonna save a lot of money. If you don't, that's where they get you," says CreditKarma's Lin.

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