Credit cards got a lot more attractive during the course of 2011 as issuers revamped old offerings, tied high sign-on bonuses to existing cards and introduced products with unconventional rewards.
The reasoning behind the beefed up offerings is simple.
“Issuers are trying to woo back the customers they lost to the recession,” Beverly Harzog, an expert with Credit.com, says.
It also helps consumers (or hinders them, depending on their personal spending habits and credit score) that the uber-popular debit card got a bit more expensive this year, thanks to the Federal Reserve’s 21-cent cap on swipe fees.
As the new year approaches, the strategy appears to be working. A recent report from Javelin Strategy and Research found that consumers spend an average of $82.10 per online transaction when using a credit card compared to $58.29 when using a debit card, and the company predicts that the use of credit cards to buy online will climb by 63% from 2011 to 2016 while debit card use should grow by only 2%.
[Click here to check current credit card offers, including rates and terms.]
Credit experts also agree that lucrative sign-on bonuses and competitive rewards deals will continue to proliferate despite the fact that consumers are already moving back to credit. But not all cards are created equal. To give you an idea on the types of cards qualify as competitive, MainStreet asked experts which ones they thought were among the more notable additions to the marketplace in 2011.
Capitol One Cash Credit Card
Capital One (COF) launched a slew of quality credit cards this year, but the Cash card that launched in August is what Tim Chen, CEO of credit card ranking site Nerd Wallet, calls “hands down” the best new card of 2011.
The card carries a fairly standard rewards program -- 1% cash back on all purchases -- but also gives customers an extra 50% of all the cash back they have earned at the end of year (which actually works out to a 1.5% return). It also helps that the card currently has a $100 dollar sign-on bonus for which customers only need to spend $500 during the first three months to qualify.
The card also carries no annual fee and a 0% introductory APR that lasts until September 2012. After that, the APR jumps to between 12.9% and 20.9%, depending on the cardholder’s creditworthiness.
“With the added benefit of no foreign transaction fees, this card is a no-brainer,” Chen says.
The American Express Blue Cash Cards
Back in April, American Express (AXP) restructured its flagship Blue Cash card, introducing two new cards tailored to two different audiences. (Chen explains that it also streamlined the Blue Cash rewards program to eliminate some confusing qualifiers.)
The revamp resulted in two very competitive rewards cards:
The higher-end American Express Blue Cash Preferred card, which has a $75 annual fee, entitles cardholders to 6% at supermarkets, 3% at gas stations & department stores and 1% everywhere else, with no limits or caps. Amex also currently offers $150 cash back if you spend $1,000 in the first three months.
“The card favors folks with above average spending habits,” says Curtis Arnold, founder of http://www.cardratings.com/ CardRatings.com. He points out that its counterpart, the American Express Blue Cash Everyday card, isn’t a shabby offering either.
Amex’s no-fee version of the Blue Cash card entitles cardholders to 3% back at supermarkets, 2% back at gas stations and department stores and 1% back on other purchases made during the year. The card currently features a 0% introductory APR for the first six months. After that, the APR will be 17.24%, 20.24% and 22.24%, depending on creditworthiness.
United Mileage Explorer Card from Visa Signature
2011 was a rebirth of sorts for exclusive airline cards. Both American Airlines and United Airlines (UAL) debuted new cards this year, while Continental and Delta (DAL) beefed up the rewards associated with their existing offerings.
Chase’s United MileagePlus Explorer, launched in July, stands out from the other offerings because, unlike most elite airline cards, it’s one that the average consumer who just happens to travel a lot can afford. The card entitles users to priority boarding and lets the cardholder and a travel companion check their first bags for free (a savings of up to $50 per passenger per round trip).
Admittedly, the elite perks are scaled back a bit: Cardholders only get two passes per year to the United Club and the card does carry a 3% foreign transaction fee – but this is in exchange for a much lower $95 annual fee (waived the first year) and a pretty swanky sign-on bonus. Chase (JPM) is currently offering cardholders 25,000 bonus miles the first time they use the card.
“You buy a cup of coffee and you get your bonus points,” Harzog says.
In terms of straight rewards, cardholders earn two miles for each $1 spent on airline tickets purchased from United and Continental and one mile per $1 for everything else. The APR is around 14.24%.
Journey Student Rewards Card from Capitol One
This other notable Capitol One card, launched in February, is designed to help students build credit because its offers extra rewards to those who use the card wisely: they get 1% cash back on all purchases, but get a 25% bonus on their cash back each month when they pay their bills on time. The card also carries no annual fee and gets Visa Platinum benefits, which entitles students to extended warranty protection on certain purchases, 24-hour travel assistance service and auto rental insurance when you use it to rent a car.
Generally speaking, the APR is a bit high at 19.8%. However, “The average [interest rate] is mid-to-upper twenties for student cards,” Arnold from CardRatings.com says. He recommends the card to any student who is trying to build a good credit profile.