Credit Cards

Tips, news, reviews, caveats, trends, updates and analysis related to consumer and business credit cards, and prepaid debit cards. From the interest rate specialists @

Tuesday, November 03, 2009

Slate: A New 0% Credit Card from Chase

Slate from Chase
Slate from Chase
The government continues to report positive macroeconomic news. Yesterday, the Institute for Supply Management (ISM) released its Purchasing Manager's Index (PMI) for October 2009. The PMI came in at 55.7%, better than what Wall Street economists were expecting, and better than the September figure. For the PMI, any figure above 50% is a strong indication that the American manufacturing sector is expanding.

Though an economic recovery appears to be taking hold, too many Americans are still dealing with various forms of oppressive debt, a home mortgage balance that's higher than their home's value, and job insecurity. In fact, earlier today Johnson & Johnson, a component of the Dow Jones Industrial Average (DJIA) and number 29 on the Fortune 500, announced that the company will be cutting 7,000 jobs (that's between 6% - 7% of its workforce.) National unemployment, already at 9.8%, will almost certainly rise during the fourth quarter and into Q1 2010. A jobless economic recovery? Yes: we're in it right now.

The whole world is relieved that the subprime debt-inspired credit crisis, which precipitated the worst recession since the early 1980's, and which brought the American financial system to its knees, has almost run its course. The liquidity maelstrom of 2008 and 2009 prompted the banks which survived the subprime debacle to cutback on all kinds of loans, including credit cards.

But financial markets are on the mend, as evidenced by low LIBOR rates, a healthy TED spread and the return of generous 0% intro APR credit cards.

Credit cards that offer a 0% intro APR period of at least 12 months all but disappeared from the market last year. But they're back. JPMorgan Chase Bank, commonly known simply as Chase, recently revealed a new credit card called Slate. Here are the vitals on Slate:

  • 0% introductory APR on purchases for 12 billing cycles
  • 0% introductory APR on transferred balances for 12 billing cycles
  • Balance transfer fee of 3% of each transaction, with a minimum of $5
  • NB: The 0% intro APR is reserved for those who qualify for "Elite" or "Premium" pricing. Those who can only qualify for "Standard" pricing cannot take advantage of any interest-free introductory period with this particular card.
  • For those who qualify for Elite pricing, the "goto" rate (also known as the ongoing rate) is 13.24% (the U.S. Prime Rate plus 9.99%); for Premium pricing it's 17.24% (Prime plus 13.99%.) For Standard pricing, the introductory and goto rate is 22.24% (Prime plus 18.99%.)

If you have a good FICO® credit score (above 700), you will probably qualify for either Elite or Premium pricing.

Slate is a very timely credit card: it has arrived in time for the fast approaching Christmas shopping season. With Slate, cardholders can do their holiday shopping and have plenty of time (12 billing cycles) to pay their credit card balance down to zero without having to worry about interest charges.

The goto rate with the Slate card, however, is relatively high when compared to consumer-friendly credit card offers that were available before the global credit crisis (likely a direct result of new rules included in the Credit Card Act of 2009.) For the consummate borrower who qualifies for Elite pricing, the rate charged on any balance remaining after the interest-free, introductory period ends is Prime (currently 3.25%) plus 9.99%, which translates to 13.24%.

But the U.S. Prime Rate is as low as it can possibly go. As the economy heats up, it will certainly rises, and it will likely do so at a relatively fast clip as the Fed works to contain future inflation. There is no way of knowing exactly how high the Prime Rate will be a year from now, but if we plug in the median U.S. Prime Rate -- 8.75% -- then we get a rate of 18.74%, which anyone would agree is not consumer-friendly. In fact, any rate above 15% would be too much of a financial burden for the typical credit card consumer.

That's why we recommend Slate for anyone who can pay their balance down to zero over 12 months or so, which shouldn't be that hard to do (no need to go crazy with the Christmas shopping!)

As always, your comments are welcome and appreciated.

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Sunday, November 01, 2009

Will 0% Credit Cards Make a Comeback?

0% Credit CardsNo one can predict the future, but if our economic recovery continues on its current course, we most likely can expect 0% credit card deals to stage a comeback.

The Past
When our economy hit its low point in 2008, zero percent offers for balance transfers virtually disappeared from the market. Just months before that, there were a plethora of interest-free offers available, many of them being for 12 to 15 months. As our country’s financial health deteriorated, almost every bank terminated these incredible offers. Instead, they were replaced with promotional rates only valid for three to six months.

The Future
Today, we are seeing positive signs that this trend is now reversing. During the third quarter of this year, issuers like Discover gradually began to sweeten their promotional offers. More and more credit card deals for longer promotional periods have been popping up across the net. Unfortunately some issuers, like American Express and Bank of America, have been slower to follow suit.

Assuming we continue on the road to recovery, these incentives should continue to become more common. Initially, they will probably only be made available to those with average to above-average credit. Once unemployment and foreclosures begin to ease up, banks may extend these offers to those with below-average credit, too.

As the percentage of bad debt goes down, lower interest rates on credit cards should follow. However, it’s important to note that most have APRs which are now linked to the prime rate; if that were to increase significantly, then rates may go up.

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What’s Next For Small Business Credit Cards?

business credit cardsDuring the past twelve months we have seen a paradigm shift in small business lending to say the least. Once a staple of the industry, small business credit cards are now a rare find. As previously reported on this blog, banks left and right have been terminating business cards; including Advanta, Chase, and Citi. Many cardholders have also complained about higher interest rates and lower credit limits.

What’s Next?
Although there is some dispute as to whether or not the recession is over, there’s no denying that economic conditions have significantly improved since last winter. According to the United States Commerce Department, the U.S. economy grew 3.5% during the third quarter. Positive GDP growth has also been reported by some other countries, with China
leading the way so far at 8.9%. If economic conditions continue to improve, we most likely will see business credit cards trickle back onto the market.

What Will Be Different?
It’s important to note that business cards are currently excluded from the Credit Card Reform Act of 2009. Therefore, it's possible we may experience the same "bait-n-switch" complaints on credit card deals in the future. That being said, due to increased scrutiny and regulation of the industry, these questionable practices will likely become far less common.

It is also likely that new cardholders won’t be granted high credit limits, at least initially. Before the economic turmoil erupted, many new customers were given extremely high limits; often in the tens of thousands of dollars. For now, it is unlikely we will see these same spending limits awarded to new accounts.

Furthermore, applicants with lower credit scores will probably not be approved. We may even see business credit card deals explicitly mention they are only seeking those with excellent credit profiles.


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