An online tool from the federal government may soon be available to consumers that is intended to make it easier to compare credit card comparisons.
The Consumer Financial Protection Bureau said it had started asking big banks for more details on typical interest rates for people with certain credit ratings so buyers could get a better idea of whether they would qualify for a card and what interest rate they would be paying .
In the face of rising interest rates, the bureau has “modernized” the way it collects data from card companies “to boost competition and help families use products with lower interest rates and fees,” said the agency’s director Rohit Chopra, in a statement in March.
The bureau already collects information twice a year from the top 25 credit card issuers, plus a sample of at least 125 other issuers, to cover a range of banks across the country and publishes that information online. (She inherited the polling task from a decades-old law.) But banks only provide information about their most popular cards. And the information is not necessarily easy for consumers to use.
As part of the bureau’s new approach, banks will be asked more questions about a card’s terms, such as: B. to the interest rate, which is referred to as the annual percentage rate of charge or annual percentage rate. When a card’s interest rate—like most—is dependent on the applicant’s creditworthiness, banks must report the lowest and highest fees and median APR for scores of 619 or below, for 620 to 719, and for 720 and above.
People often have a general idea of what their credit score is, the bureau said. So by seeing the typical rating for their range, they can better compare interest rates across cards and estimate the potential cost of borrowing. (Credit scores are three-digit numbers that summarize your credit history; higher is better.)
Now the 25 largest card issuers have to answer questions about all of their credit cards, not just their most popular offerings. The other banks are asked to “voluntarily” submit information about other cards. The bureau also encourages each bank — in addition to those taking part in the survey — to submit information so consumers are aware of their offerings.
The bureau is looking for more information about each card — for example, whether it’s a “secured” credit card, which requires a security deposit to set a credit limit and is often used by those with limited credit histories or low credit scores. Banks are also asked about the terms of balance transfers, introductory interest and cash advances.
More than a dozen commercial websites already offer credit card comparison tools. But the sites often work with a relatively narrow selection of large issuers, consumer advocates say, and earn fees when buyers apply for a card. (Most websites will indicate this.) Offers from smaller banks and credit unions, which may charge lower interest rates, may not be included.
“Comparison sites only feature products that they have a commercial relationship with,” said David Silberman, senior fellow at the nonprofit Center for Responsible Lending. The sites can be useful, he said, as long as consumers understand the restrictions. “This is not objective advice.”
The bureau’s move is part of its effort to promote consumer-friendly card practices like lower late payment fees. But banks have objected to the bureau’s new approach, calling it too vague.
The American Bankers Association, in a letter dated March 13, asked the agency to abandon its current plan and start over. The association also asked the bureau to “explain its apparent ambition to create a CFPB-powered credit card comparison platform with sufficient detail to allow commenters to evaluate such a proposal.”
Consumer advocates say the idea of an office-powered comparison tool is promising, but the details remain to be seen.
“Obviously, it helps to have this information from an unbiased source,” said Chi Chi Wu, senior counsel for the National Consumer Law Center. But an ideal comparison tool, she said, would allow consumers to compare a true “effective” interest rate that reflects the card’s interest rate along with the impact of fees, such as renewal fees, late payment fees, wire transfer fees and cash advances.
Information about a card issuer’s typical practices would also be helpful, Ms. Wu said. For example, a card’s reported late fee may be $30, but the issuer might be willing to waive it unless you’re drastically late. “If you ask,” she said, “will you take it off?”
Here are some questions and answers about credit cards:
When will the consumer advice center make the extended card information available online?
The bureau said it began collecting the new details the week of March 21 and that the deadline for issuers to deliver them is April 20, but it did not say when they would be available to the public would be. The office said in an email that getting the information out to the public as soon as possible was “a priority”.
What factors should I consider when purchasing a credit card?
Consumers should think about how they will use the card. Will they pay it off every month or will they probably have a balance? “Be honest with yourself,” said Mr. Silberman. If you don’t pay the balance in full, you’ll pay interest, so it’s important to get the lowest interest rate possible.
People often first look for what kind of rewards or points they can earn with a credit card, but those perks are only valuable if you cash out your balance monthly, Ms. Wu said. “Any rewards are overshadowed by the interest rate you pay,” she said.
Pay close attention to the wording in credit card promotions, said Ruth Susswein, director of consumer protection at Consumer Action, an advocacy group. If the promotion says the rate is “only” 15 percent, she said, that may well be the case — but maybe only if your credit score is 800 or more. “Otherwise it doesn’t apply to you.”
Some commercial websites offer free “matching” services to recommend credit cards, but won’t receiving multiple recommendations affect my credit score?
Matching services typically provide what the industry jargon calls a “soft pull” on your credit report. This is not the formal request made in an actual application, so your credit rating (which is based on the data in your report) should not be affected.
However, the services also state that they do not guarantee that you will qualify for a recommended card. And since you usually need to register to use the Services, you may receive offers on other products.
“It won’t hurt you,” Ms. Susswein said. “But it’s certainly a way to be marketed.”