"A Crisis in the Making": Credit card affiliates discuss the current industry

In today’s economy, good offers of credit are few and far between for the average consumer. Chase, Citibank, and HSBC (to name a few) are being pickier than ever about who gets to carry their plastic.

We talked to experts Jeremy Panizzoli of ASAPCreditCard.com and Bill Hazelton of CreditCardAssist.com to shed more light on this issue. Bill and Jeremy are both in the credit card affiliate business, matching consumers with the credit card offer that’s right for them. Check out what they have to say about the current crisis and their predictions for the future: 

Are more or less people searching for credit cards online since the recent economic decline? Are people still looking for new credit or are they trying to steer clear of taking on more debt?

Jeremy Panizzoli:  At ASAPCreditCard.com, we've seen traffic decline significantly over past several months which implies that consumers are looking for other ways to make purchases or are cutting back on spending entirely.

Bill Hazelton:  On an absolute basis, our traffic has actually increased since the start of the downturn...but card approvals are way down. Card issuers have made it much more difficult for the average person to get credit. The banks are actively reducing credit lines and even canceling accounts entirely. Many people, especially the unemployed who have very recently lost jobs, don't have the same available credit and can't plug the holes in their income in the same way they have in the past. Liquidity has essentially evaporated for these folks, leaving many of them completely empty handed. It's a crisis in the making.

Recently, many credit card companies decided to pull their card offers from the affiliate channels like yours. What do you think is the main reason behind that decision?

JP:  It's obvious the financial crisis is having an effect on credit card companies. Because many of these companies have exposure to mortgages and other troubled assets, they have been forced to re-evaluate their business models entirely--including the credit card business.

BH:  Card issuers are trying to mitigate the risk of defaults by tightening their lending criteria on new card applicants and narrowing their distribution sources. With declining economic activity, rising unemployment, and job losses, limiting new card applicants within the affiliate channels was one way to mitigate that risk substantially. With FICO scores dropping for consumers across the board these days because of the economic crisis, new card applicants are far less desirable and much too risky from the card issuers' vantage point.

How important are credit scores when applying for credit now?

JP:  Credit scores are more important than ever before. With default rates rising, credit card issuers are looking for the most qualified applicants to ensure their businesses remain profitable.

BH:  FICO scores are still incredibly important when applying for a card.

Is it much harder for the average consumer to get credit at a good interest rate?

JP:  Stricter approval guidelines have made "easy credit" a thing of the past, and even with interest rates at record lows, you'll have to have an extremely high credit score to lock-in the best rate. The average consumer will have to settle for an average rate.

BH:  It's decidedly more difficult for the average consumer to get credit at an affordable interest rate. The cost of credit has gone up and will continue to go up as banks and card issuers re-price the risks of new cardholders.

Which credit card companies are still marketing to and approving those with low credit scores?

JP:  Several months ago, HSBC and Orchard Bank provided a variety of offers to consumers with poor credit. But Capital One and First Premier Bank are the only large issuers providing approvals to people with lower credit scores.

BH:  Card issuers are extremely guarded about their lending criteria. Quite frankly, I don't know that any of the major card issuers would lend to people with "low" credit scores right now.  If they did, the interest rate that the cardholder would be required to pay would be substantially higher than a cardholder with a good FICO score.

What is considered a low credit score now?

BH:  The old FICO scoring tiers have changed.  It used to be that a FICO score of 720 was considered top-tier credit.  Now, a 750 FICO is considered top-tier.  So each credit tier Excellent, Good, Average, Poor has gone up 20 to 30 points across the board.

What do you think is in store for the credit industry in 2009?

JP:  Conditions will start to improve in mid 2009, and it's likely credit card issuers will return to the affiliate marketing channel. I'm expecting this to occur some time in the 2nd quarter of 2009 when government stimulus begins impacting the financial market and banks start lending money again. This will be a good sign for consumers and will suggest credit card companies are looking for new applicants. But until the job market improves, credit will remain tight and stricter approval guidelines will remain in place.

BH:  It's going to be a rough ride for at least the next 18 months for consumers, card issuers and affiliates. Credit lines will continue to shrink and lending criteria will only continue to get more and more stringent. I wish I could be more optimistic, but it's going to get pretty ugly and will be a difficult environment for all concerned.

What is your best credit card advice for consumers to get through this tough economic time? 

JP:  If you have multiple credit cards, pay down the highest rate offers first. Avoid additional spending unless absolutely necessary. And stay positive--we'll get through this!

BH:  We have an addiction to readily available credit in the US that really has to be broken. This is a great time for consumers to start weaning themselves off of their bad credit habits. The shakeout that's happening right now will only serve to help consumers kick their bad credit habits in the long haul, but kicking the habit cold turkey will not be pretty in the short-term. As with any addiction, the first step is admitting that you have a problem.