Candice Choi

Looking for a new credit card? It will help if you’re rich and like to spend

By Candice Choi
Associated Press / February 23, 2011

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A year after new credit card regulations upended the industry, banks are showering perks on big spenders with sterling credit scores but socking customers with spottier histories with higher interest rates, lower credit limits, and new fees.

That’s largely the result of the Credit Card Accountability, Responsibility and Disclosure Act. A key change: Issuers can no longer increase rates on existing balances or in the first year an account is open. The penalty for late payments is capped at $25. And monthly statements must spell out the costs of making minimum payments only. Here’s how card offers are changing in three credit brackets:

The A list (excellent credit)
A clean payment history and a healthy appetite for spending put these customers at the top of the credit pyramid.

Customers can earn rewards at five times the standard rate with a premium card being tested by Bank of America. That applies to select purchases, and the $75 annual fee is waived for those who have at least $50,000 with the bank. Generous balance-transfer options abound. Think 0 percent interest for up to a year on new purchases. American Express, Chase, and Citi are doing away with foreign transaction fees on select cards.

B-list (good to fair credit)
They have solid credit histories, but may have more modest spending habits or make an occasional late payment. Many are seeing an uptick in offers for rewards cards, but the terms aren’t dramatically different. B-listers with spottier records still will have to agree to higher interest rates and annual fees, even for plain-vanilla cards.

A new $59 annual fee is being imposed on certain Bank of America customers who fit certain risk profiles, such as carrying a balance close to their credit limit. A year ago, the same customers could easily find similar cards with no fees.

The average interest rate offered to those with merely fair credit scores is 22.57 percent, up from 19.07 percent about a year ago, says.

Consumer advocates say knowing costs upfront is an improvement to the tactics employed before the new rules.

The D List (poor credit)
For consumers with a record of defaults and late payments, the recession isn’t the only reason the options have dried up. The CARD Act means banks can no longer freely raise rates or impose fees to manage their default risk, said Dennis Moroney, an analyst at TowerGroup. So when they issue cards, “they have to have their ducks in a row.’’

With bigger issuers such as Capital One, the choices for customers with tarnished credit are pretty much limited to secured credit cards. These cards require deposits and offer small credit limits. There are often activation fees as well.

Candice Choi writes for the Associated Press.