Great deals on credit may have hit limit

By Ted Griffith
The (Wilmington, Del.) News Journal

Consumers beware: Attractive credit card offers appear to be headed for the endangered species list.

Increased borrowing costs are driving credit-card issuers to raise interest rates, alter terms of cardholders' agreements and cut back on introductory offers that promise no interest for a year or more, industry analysts said.

"These are trends that are taking hold and that we can expect to see continue if, as expected, interest rates rise further," said Greg McBride, an analyst with North Palm Beach, Fla.-based Bankrate.com.

After hitting their lowest levels in more than 15 years, interest rates on credit cards have begun to climb, with the average rate on a variable-rate credit card jumping by more than one percentage point in the past two weeks, according to Bankrate.com. Credit-card issuers also are curbing zero-percent interest rate offers and shifting customers from fixed-rate to variable-rate cards in response to rising rates.

When they get hit with higher rates, cardholders should consider calling their credit card companies and negotiating for a reduction, said Ed Mierzwinski, consumer advocate with the Washington-based Public Interest Research Group.

And, given the current interest rate climate, it's more important for consumers to pay down their balances, he said.

Interest rates have been on the upswing because of moves by the U.S. Federal Reserve, which has great influence over the baseline rate for almost all types of borrowing, including credit card debt.

By ratcheting up borrowing costs, the Fed intends to cool the economy and stave off inflation. Recent economic reports that point to weakening job growth could temporarily slow the pace at which the Federal Reserve raises rates, but economists anticipate rates will go higher eventually, McBride said.

For cardholders, a rising rate environment will mean several changes, including a decline in zero-percent interest rate offers, analysts said.

For competitive reasons, the zero-percent offers "won't disappear overnight," but consumers can expect to see fewer of them in the coming year, said Evan Momios, an equity analyst with Standard & Poor's in New York.

The "vast majority" of cardholders at New York-based Citigroup, the No. 1 credit card issuer, already have variable rates, a spokeswoman said, and Wilmington, Del.-based MNBA Inc. will have one-third of its 50 million cardholders on variable rates by the end of the year.

Variable rates allow credit card issuers to quickly pass on their increased borrowing costs to consumers, with the hike often taking effect in the billing period immediately following a move in the prime rate.

But even cardholders who retain fixed rates shouldn't think they'll escape the rising tide, Bankrate's McBride said. Unlike fixed-rate mortgages, credit card companies can change "fixed" rates as long as they notify the customers.