Things are looking rosier for credit-card holders. Consumers are paying down balances and facing fewer punitive actions by credit-card companies such as higher rates, late-payment fees, and canceled cards, according to a nationwide survey by the Consumer Reports National Research Center. And with reports of delinquencies and defaults down, card issuers have resumed stuffing your mailbox with offers, many of them featuring low-rate introductory deals or lucrative rewards.
New federal rules barring many abusive practices by card issuers seem to be having an effect. Only 12 percent of the 1,258 Americans surveyed in July said their credit-card companies had generally treated them unfairly, down from 22 percent in 2009. More people are being approved: Only 14 percent were denied a card in 2011, compared with 24 percent last year.
But that doesn't mean you can let down your guard. Thirty-five percent of survey respondents said in the past year they had experienced at least one credit-card problem, such as a new annual fee, higher interest rate, lower credit limit, or limits on rewards. Average interest rates on new cards were 14.11 percent in September, up from 11.64 percent in May 2009, according to LowCards.com, a card-comparison site.
If you're among the 56 percent of Americans who pay off their card balances each month, you might want to take advantage of offers promising introductory bonuses of cash, miles, or points. The best rewards-card deals are reserved for people with credit scores of 730 to 740 and up.
If you regularly carry a balance, a rewards card probably won't be a good fit, since they tend to have higher interest rates than standard cards, and you might pay more in finance charges than you would gain in rewards. But we've also seen tempting terms on non-rewards cards, such as low introductory interest rates.
Here's what we found when we analyzed dozens of credit-card offers:
Some cards offer cash bonuses for signing up and spending a certain amount—usually from $500 to $3,000—within the first three months. The Chase Freedom card and Citi Dividend World MasterCard offer $100 and $200, respectively, in up-front cash.
These low interest rates are attractive to people who carry a balance. The Citi Platinum Select Card, for example, offers a zero percent APR on purchases and balance transfers for 21 months. The PenFed Visa Promise card, which is available to members of the Pentagon Federal Credit Union, has a 7.49 percent APR on purchases for the first 36 months, then a variable rate, currently 9.99 percent. And it has a 4.99 percent APR on balance transfers for 24 months with no transfer fee. (Membership in PenFed is free for members of the military and their families and for U.S. government employees, among others; people can also become members by joining the National Military Family Association for a $20 fee or Voices for America's Troops for $15.)
Frequent flyers might be enticed by "free round-trip ticket" promotions by airline and bank cards. The Chase Sapphire card offers 25,000 points—promoted as worth $250 toward a round-trip flight—after you spend $3,000 in the first three months. Bank cards usually let you redeem points with any airline, so you generally can get an unrestricted flight for about 25,000 points without being subject to blackout dates and limits on the number of reward seats. With cards issued by airlines, you might need to use up to 50,000 points to get an unrestricted flight on the dates you want to travel.
A new trend in rewards cards is to offer two versions of a card: one that carries an annual fee and a no-fee version with a smaller payback. The annual-fee versions might offer a higher introductory point bonus than the no-fee ones. The no-fee Capital One VentureOne Rewards card, for example, pays 1.25 miles per $1 spent; the Venture Rewards card, which has a $59 annual fee (waived in the first year) earns 2 miles per $1 spent and comes with a 25,000-mile bonus if you spend $1,000 in the first three months. The VentureOne offers 10,000 bonus miles, but after the first year, the VentureOne card is the better travel-rewards option for people who spend less than $8,000 a year.
American Express has a "preferred" version of its Blue Sky and Blue Cash cards. Each has an annual fee of $75, but they come with $100 sign-up bonuses and better cash-back options than the no-annual-fee versions. And there are additional perks, such as the Blue Sky Preferred's annual $100 "airline allowance," which can be applied to baggage fees, in-flight food, and other incidental in-flight purchases.
Airline cards usually charge an annual fee, but many waive it in the first year. Some airline cards—Continental Airline's Presidential Plus is one—provide perks such as priority boarding and free checked baggage that can offset the annual fees. And several premium travel cards from banks and airlines offer additional benefits, such as travel insurance, trip-delay coverage, rental-car insurance, and occasionally no foreign transaction fees.
Several cards used to pay 5 percent cash back on gas, but the norm is now 3 percent. One holdout, the PenFed Platinum Cash Rewards card, still pays 5 percent. If you always buy the same brand of gas, you might benefit from an oil-company card. The BP Visa card pays 5 percent on purchases at BP and 10 percent up to the first 60 days (subject to limits). But its APR goes up to 19.24 percent on purchases. And beware: The Shell Drive For Five credit card carries an APR of 24.99 percent.
Reading the fine print of rewards programs before you sign up can steer you away from cards with these catches:
Some cards, such as the Chase Freedom and Discover More cards, offer 5 percent cash back in rotating categories that can correspond to the season in which people generally shop for those items. But you must opt in each time.
If you're not a big spender, watch for terms that require you to spend a certain amount to get the advertised perks. The Discover More card, which enticingly pays 5 percent in those rotating categories, offers only up to 1 percent on other purchases. And "up to" is the key here—if you spend less than $3,000 a year, you get only 0.25 percent cash back.
The Citi Dividend World MasterCard pays a $200 bonus after you spend $1,000 in the first three months, but it has an annual cap of $300 on certain rebates. Bank of America's BankAmericard Cash Rewards Visa pays 3 percent on gas, 2 percent on groceries, and 1 percent on everything else. But if you spend more than $1,500 on gas and groceries in a quarter, your rewards drop to 1 percent.
Check for expiration dates on rewards, especially with travel cards, because it often takes a long time to accumulate enough points for a ticket.
Some cards take away your month's points if you miss a payment and might charge you a reinstatement fee of $25 or so to get the points back. The Discover More card takes away all your points if you miss two straight payments. Setting up account alerts for payment due dates or arranging to have your bill automatically paid out of your checking account can help you avoid losing your rewards.