If your mailbox is stuffed, you can probably blame the credit card industry. Credit card offers are booming again, after a few quiet years of tighter credit.
John Ulzheimer, an independent credit expert and president of consumer education at SmartCredit.com, offered advice on finding the best credit card deals and how to make the most of them.
Q. What's the outlook for credit cards in 2013?
A. We will likely see more loosening of the purse strings from credit card issuers now that they have fully absorbed the Card Act, which somewhat restricts them from changing credit card interest rates and adding new fees.
I expect issuers to go deeper into the credit scoring pool to make offers for new cards, which is good news and bad news at same time.
It's good for people who have had credit problems - either because of the loss of a job or a bad mortgage - but (who) are otherwise modest-to-low-risk borrowers. These are the people who are able to get back into the game at low rates, but have been otherwise frozen out.
The bad news is that people will have the ability to get into more extensive debt again.
Q. What are the best credit card deals right now?
A. Free money is the best deal of all. You can get balance transfer offers right now from every big issuer, including JP Morgan Chase, Citibank and Capital One.
The best deals include a zero percent interest rate on balance transfers, zero percent on new purchases and no balance transfer fee. It's the trifecta.
Miles and point programs aren't any better than they've been in the past, so these zero percent transfer offers are the new apex rewards program. Cash-back deals aren't better either - 1 percent cash back is the norm, although some card issuers give you a 2 percent or better kicker depending on where you use the card.
Q. Is 700 and above still the gold standard for credit scores if you want the best credit cards?
A. You better be in the 700s, which sounds tough, but 50 percent of the population is already there. If you are below 700, a zero percent balance transfer offer is not in your future. And if you are below 600, you should be concerned about getting approved for anything. Issuers don't reward people with bad credit just to help them.
Q. What interest rate should people expect to pay on their credit cards?
A. If you have decent credit, the rate on your card should be between 13 percent to 15 percent, which is terrible when you talk about any other method of financing. No one in their right mind would pay those kind of rates. But when it comes to credit cards, that's the average rate to start off with.
If you have credit that's damaged, you'll find yourself paying higher rates, likely in the 20 percent range. And if you have stellar credit, your rates should be in range of 9.9 to 12.9 percent.
Of course, the only time the interest rate is relevant is when you are carrying a balance.
The bottom line: Don't anchor yourself to the interest rate. You are acquiescing to the idea of carrying balance.
Q. What credit cards do you carry?
A. My American Express card with the Delta partnership has 14.5 percent rate, but it doesn't matter to me because I don't pay interest on it in the first place. I have a USAA cash-back credit card and use their bank. Everything I need financially, I basically get through them because of their customer service.
Q. Do you carry any branded cards?
A. I have a Home Depot card. It's got a horribly high interest rate. I did a kitchen renovation and bought cabinets, so I got a really great deal by signing up for a card. Saving 10 percent off of $14,000 worth of cabinets is a lot better than saving 10 percent off a pair of boots. But with 25 percent interest rates, branded cards don't make much sense if you carry a balance, even if you use all of those coupons you get for being a loyal customer.
Q. Is there ever a reason to use a prepaid debit card?
A. These aren't credit cards. There's no underwriting, no denial, no approval. It's like buying a gift card at the mall.
Pre-paid debit cards are a high-margin product, normally very fee-intensive. Unlike other financial services products, prepaid debt cards often have a celebrity attached such as Suze Orman, A-Rod (Alex Rodriguez), Kimora Lee Simmons, Justin Bieber. The list goes on and on.
While I'm very critical of prepaid debit cards, American Express has a new prepaid Bluebird card with Walmart that is an exception to that rule. It's a very competitive product you can load for free at any Walmart location. There are no fees associated with it, unless you are a heavy ATM user. Other prepaid debt cards cannot make that claim.
Q. Where should I do the research to find the best cards?
A. A bunch of websites act as credit card strip malls. Bankrate.com is very good. Bankrate.com also owns CreditCards.com. Credit.com, where I used to work, has helpful information. Some others worth a look include CreditSesame.com and CreditKarma.com. I also like CardRatings.com because they have good, detailed reviews of cards on their website.
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