Slate: A New 0% Credit Card 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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Chase "Forces" Me to Close My Favorite Business Credit Card

It's the old credit card bait 'n switch. The credit card banks bait you with attractive terms and generous rewards programs to get you to signup. Then, they wait. They wait for you to accumulate a large enough balance, then jack up your interest rate. I've been reading about this a lot on other websites recently; now it's happened to me, with my Chase business credit card.

Just got a snail mail notice from Chase informing me that the company is going to raise the interest rate on my favorite business credit card, from a fixed rate of 9.9% to a variable rate of (Prime + 11.99%) = 15.24%. 15.24% is now the interest rate floor for this card, since Prime is not likely to go any lower. Of course, I have the option to opt out of the change. This would cause my account to be closed, and I would then continue to pay the balance down to zero at the original 9.9% APR.

Thankfully, I'm prepared for this contingency. I plan on paying the balance off with some cash from savings and a small loan via Lending Club


I don't have to borrow any money via Lending Club to payoff my Chase business card, but I really like the idea of Lending Club -- bypassing the banks and borrowing from regular folks across the country -- and I want to go through the process of borrowing through Lending Club myself so that I can report on my experience here in this blog.

To be perfectly honest, I really like my Chase business card, but, clearly, it's time for us to part ways. With the U.S. Prime Rate at 3.25%, any rate above 10% is a subprime rate, in my opinion, and I'm not a subprime borrower. I took advantage of an excellent 0% intro APR offer with this card, and, when the 12-month, interest-free period ended, I used the cash back rewards program to lower my cost of borrowing to a nominal level.

I really like the cash back rewards program with this card. I spend money on it and reward points accumulate. Then, when points reach a certain threshold, I simply login to my account and request a statement credit. With a few business days, the statement credit is posted to my account. Easy. No forms to fill out, No waiting until the end of the year to get my cash back reward and no waiting for a snail mail check. I will miss this rewards program.

I have to hand it to Chase for being honest. In the change of terms notice they sent, they explained the change as a, "response to market conditions," and they also added that the company wants to "maintain profitability." I'm hating the change but I respect the honesty. Contrast this with the Barclay's notice I received when that credit card bank closed my BJ's Visa Card. The company wrote that it was to, "...help [me] better manage [my] credit accounts..." In other words, not only did they close my account without consulting me first, they also felt it necessary to insult my intelligence.

In other business credit card news: Citi® closed my inactive CitiBusiness® card recently. I will miss this card because:

• it had a decent credit line (~$10,000) which enhanced my business's credit profile, and
  
  
• the account was aged which, again, contributes to my business's credit rating. It was my first business credit card.
  

So now I'm left with 3 business credit cards: two from Bank of America and one from Advanta. The Advanta card is about to be anointed as my "goto" card, because I'm still enjoying 0% intro APR on purchases, and the purchase APR will jump to a somewhat reasonable 7.99% when the interest-free period ends . I have been reading some horror stories about this particular Advanta business card (unwarranted rate hikes), but so far I've all is well. If Advanta tries to pull some funny business by raising my rate, I'll just pay the card off (my credit limit is under $3,000, and my balance isn't anywhere near that.)

As a final note: it's really no wonder that American Express is consistently rated as the best credit card bank. Right now the company is offering some high-risk cardholders a $300 payment (in the form of a prepaid gift card) in exchange for these accountholders paying their balance down to zero within a certain timeframe, and closing their account. Now that's my kinda' credit card bank!

NB: In that same JD Power & Associates Credit Card Satisfaction Study(1), Discover Card placed second.

Chase, on the other hand, has identified certain credit card accounts that may be at risk for default, and has responded by imposing a $10 per month fee. Yikes! I'm not a public relations professional, but I do have some sage advice for JP Morgan Chase CEO Jamie Dimon: stop doing that!

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The Credit Crunch

Credit Crunch

The credit crunch that's enveloped global financial markets has many consumer and business owners worried about the availability of consumer-friendly financing options. The crunch has caused many lenders to cut back in different ways, but 0% credit card offers are still numerous and often generous. Some consumers have complained of out-of-the-blue credit line decreases, but, from my own anecdotal observations, these situations appear to be few and far between. Keep your credit score high and your balances low and you shouldn't have to worry about sudden and inconvenient limitations on your credit. I'm still getting lots of great, unsolicited 0% offers in the mail, from accounts I already have open as well as offers to open new accounts. When these offers start drying up, I'll start to worry.

The Federal Reserve has been cutting short-term rates since mid-September of last year in an effort to ward of recession and help cure problems in the financial markets. Some Fed rate cuts have been very aggressive, and the central bank will likely cut rates again on March 18. These interest-rate decreases will get consumers and businesses into borrow-and-spend mode, and will also grease the wheels of the banking system and make it easier for Americans to find consumer-friendly loans and credit products.

When the Fed cuts short-term rates, the U.S. Prime Rate is one of the key rates that's lowered by extension. Since most variable-rate credit cards are indexed to Prime, this means for most people, the interest rate on their credit card debt is now -- or will be soon -- 2.25 percentage points lower than it was last summer. With the Fed likely to cut again in March, consumers who carry balances from month to month will end up keeping more of their hard-earned money, which is always a good thing.

Some credit card companies don't want to lower their rates when the Fed lowers the U.S. Prime Rate. Since these companies can't control the Prime Rate, whenever the Federal Reserve cuts the U.S. Prime Rate, these banks will counter by raising the margin that they add to Prime (if you have a variable-rate credit card then, most likely, your APR = U.S. Prime Rate + A Margin.) It's perfectly legal for them to do this (gotta' read those terms and conditions carefully) but, understandably, most consumers find this tactic underhanded. If the Fed is in a rate-cutting cycle, and you find that the APR on your credit card isn't declining steadily in sync with Fed actions, then call your credit card company and ask for an explanation. If you don't like what they have to say about it, then you may want to consider transferring your credit card balance to new a credit card at a new bank.

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Bottom line: if you've experienced some manifestation of the credit crunch, don't worry: the pain is almost over.

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