I’ve been looking for hard data on the growth in the size of the sign-up bonuses with which card issuers are enticing new customers for quite some time. There have been numerous reports about issuers mailing out offers with some incredibly attractive bonuses and we have quoted a fair number of them on this blog, but statistical data have been elusive.
Well, the good people at Card Hub have again come to my rescue, as they’ve done on numerous occasions before. Their latest Credit Card Landscape Report tells us that in the first quarter of this year, the initial cash-back rewards to new cardholders have doubled, compared to the same period a year ago. Rewards programs, in general, have also become much more generous, we learn. Let’s take a closer look at the data.
Sign-up Bonuses, Cash-back Rewards Up
Card Hub’s report tells us that in Q1 2012 the average initial cash-back bonus was $57.42, 99.2 percent above the $28.82 average calculated for Q1 2011 (I don’t know why Card Hub puts the change at 92.56 percent). Bonuses given in miles or points have also increased, but at a lower rate than the cash-back category. The average such bonus in Q1 2012 was calculated to have been 10,051, up 19.3 percent from the 8,425 average in Q1 2011.
Zero-percent introductory interest rate periods in Q1 2012 were 27 percent longer than they were in Q1 2011, we learn. Zero-percent balance transfer terms were about 36 percent longer. On the downside, balance transfer fees rose slightly (from 2.96 percent to 3.05 percent), while regular interest rates were mixed, rising for some types of borrowers, while falling for others (we do know from other sources like CreditCards.com that the average interest rate has slightly increased for the period).
In another positive development, highlighted by Card Hub’s report, card issuers are decreasing or eliminating foreign transaction fees. Less than a year ago, Capital One was the only major issuer offering credit cards that didn’t charge you an extra fee for using your card abroad. Then American Express, Chase and Citi all eliminated this fee from some of their cards.
Now Is a Great Time for a New Credit Card
So Card Hub’s report should convince anyone who may still have doubted it that now is as good a time as any to open up a new credit card. Of course, the best offers are only available to people with high credit scores, but we know that issuers are once again aggressively targeting sub-prime borrowers as well. A recent report from Equifax, one of the three national credit reporting agencies, revealed that credit limits on new sub-prime cards rose by 55 percent from 2010 to 2011. Many of these cards feature some form of an incentive.
We do know why rewards programs are getting better. The card issuers are feverishly looking for ways to make up for the lost debit interchange revenues that resulted from the enactment of the Durbin Amendment. Debit transactions are now much less profitable than credit and prepaid and so, unsurprisingly, the issuers are doing their best to drive customers toward using the more profitable types of cards. This is one of the very few positive side effects of the interchange reform, which on balance has had a negative impact on consumers.
I am not recommending that you should start applying for every card you have been offered. In fact, doing so will damage your credit score and you don’t want that to happen. Remember that each credit application that you file remains on your credit report for two years and having too many of them will damage your creditworthiness, as perceived by lenders. What you should do instead, is pick the best offer (or two at the most) and apply for it, but discard all others. And, by the way, if you have opted out of receiving pre-screened credit card offers, you may want to consider opting back in. See, the unsolicited lender inquiries into your credit history, which precede each pre-screened offer, do not affect your credit score in any way; only the actual applications you initiate do. Of course, if your income is high enough that a couple of hundred dollars in sign-up bonuses are neither here nor there, opting out would be your best course of action.
Finally, if you do get a new credit card, do not rush to close down your old one(s). One of the components of your FICO score is the length of your credit history – the longer, the better. There is no need to keep the old accounts open forever, if you are no longer using them, but you should at least wait until your newer accounts age a bit.
Image credit: HD.org.