It's not only the mail clutter it's the message clutter. How do you sort out the bad apples from the good apples ? Better yet how do you find the plums like the newer PNC Bank Prime Value card or the older Wachovia Bank First Year Prime card ?
In order to get a true apples-to-apples comparison you need to find the disclosure box on the credit card application. With some credit card solicitations finding this chart may be a real challenge. This box, required under federal law, is usually found on the back of an application and is full of tiny print. Regardless of what is plastered on the outside of the envelope, or what is hyped in the large type, examining the disclosure box is of the utmost importance to your financial health.
If you consistently pay off your credit card bill each month the most important element is whether or not the card offers a grace period and how long the grace period is. More than 90% of the issuers in the U.S. offer a grace period with an average length of 25 days.
The next most important item to a convenience user is the annual fee. If there is a fee involved are you getting a significant benefit in return ? Most large issuers offer some kind of a rebate program: cash back, points towards merchandise, gas discounts, air mileage, etc.. Will your rebate earnings exceed the annual fee ? For example, most airline VISA/MasterCards charge $35 to $100 annually and give back one air mile for each dollar charged. Air miles have an average value of two cents per mile. Thus you'll have to charge between $1,750 and $5,000 per year, minimum, to offset the annual fee. If the card solicitation promotes no annual fee double check the chart to be sure the fee is waived for the first year only or that other conditions apply such as charging a certain amount annually or using the card a certain number of times each year.
Another important area for consumers paying off faithfully each month is the cash advance terms. Generally cash from bank credit cards is expensive. Not only are you charged interest immediately on cash you will probably be hit with a special fee for each advance. This is an area where the disclosure box falls short. Under federal law, card issuers must disclose the cash advance fee (usually about 2% of the amount advanced) but they are not required to disclose the interest rate for cash advances. If you have any intentions of ever taking a cash advance on your bank credit card you should call the issuer before you apply and ask if the interest rate for cash advances is different than the rate for purchases. You may be surprised to find the rate is much higher.
For most Americans who carry balances regularly or periodically the most important section of the disclosure box is the interest rate. Understanding this part has become a real challenge today with the advent of introductory rates, variable rates and penalty rates. Suffice it to say there are a couple of red flags to look for when examing this interest rate paragraph:
If the card issuer is promoting a very low interest rate of 10% or less chances are the rate is short term, only applies for a few months or the first year. The key here is to determine the difference between the short term rate and the long term rate. If the spread or difference between the two rates is more than 6% you should look for a better deal. For example if the introductory rate is a fixed 8.0% and the long term rate is prime +9.0% (the prime rate is currently 9.0%) the difference or spread is 10%.
Another red flag in comparing interest rates is the index the rate is based on. Three out of four bank credit cards have variable interest rates today and 80% of variable rates are based on the prime rate. Most consumers are familiar with the prime rate and indeed it becomes a media event each time the prime rate moves. However an increasing number of issuers like Capital One, Banc One and First USA are using the LIBOR rate instead of the prime rate. This obscure index, the London Interbank Offered Rate, only confuses consumers, making it even more difficult to compare and track the rate. Our advice is to simply discard any offers listing the Libor rate in the disclosure box. There are too many low priced, easily understood, prime based offers in the market place.
If the disclosure chart indicates the interest rate will change to a much higher rate if you fail to meet certain requirements then another red flag appears. Citibank, the nation's largest issuer, will now impose a penalty interest rate of prime +12.9% (or 21.9% currently) to cardholders not measuring up. Since it's not clear how you might fall short, our advice is to throw out any such offers. While you may not plan to be delinquent or exceed the credit line it can happen and who needs the threat of an outrageous penalty rate looming.
The next most important section of the disclosure chart for consumers carrying balances is the balance calculation method. Without getting into a detailed and confusing discussion, if you see "two cycle average daily balance including new purchases" listed in this section get rid of the application promptly. More than 85% of the industry uses the "average daily balance method including new purchases" method of calculating interest charges. The two cycle method can add up to four extra months of interest charges per year. For example if the card is offering a 15% interest rate the rate could really be as high, or higher, than 20% per year.
The annual fee section of the disclosure chart is not significant for most consumers with regular balances. If you carry a very low balance of a few hundred dollars the annual fee could be factor. However if you're like most Americans with a balance of $1,700 or more the annual fee is not a major factor unless it exceeds $30 per year. As a matter of fact you may have to pay a reasonable fee to get the best rates.
Now that you have your apples-to-apples comparison how to find the plums?
A credit card plum is a straightforward offer without the gobbledegook, hype or gimmickry found in most bank credit card solicitations today. A card plum is one that offers the highest value to the most cardholders, with a reasonable chance of qualifying and acceptable credit lines. Since most consumers revolve that card would have its value based on interest costs.
One of the newest cards to meet this criteria comes from Pittsburgh based PNC Bank. It's the new PNC Bank Prime Value card (1-800-PNC-9901 to apply; 1-800-PNC-2273 for information).
The centerpiece of the PNC Bank Prime Value card is a long term interest rate of prime +3.75% (currently 12.75%). PNC does offer a short term, six month introductory rate of 8.9% for purchases and balance transfers. The annual fee is $18 for the standard card and $28 for the gold card. There is a full 25 day grace period.
Beyond the attractive long term rate is the fact that PNC Bank treats balance transfers as purchases, employs the average daily balance method of calculating interest charges, offers a free credit card protection service. There are simply no land mines for revolvers.
Making this card a real juicy plum is the fact that PNC is committed to this below market pricing, indeed the card's long term rate represents about a 30% discount off the average national rate of 18.31%. Any issuer can assert a commitment to lower pricing but the proof is how the program is managed. PNC has recently turned to outsourcing as a way to achieve the economies of scale necessary to bring down the administration costs and to provide the engine for steady growth of their VISA/MasterCard program. This lowering of costs means three things for consumers: The assurance the PNC rate will be around for the foreseeable future, more consumers will qualify for this discount rate, and adequate credit lines are available.
This is great news for consumers nationally and especially for PNC banking customers using cards from other issuers.
Although slightly more expensive than the PNC Bank Prime Value card is Wachovia's First Year Prime card. (1-800-842-3262).Wachovia charges prime +3.9% with an $18 fee.
Both cards are examples of programs that cut through the message clutter, pass the apples-to-apples test and qualify as true bank credit card plums.
