BOULDER, Colo. -- Holders of bank credit cards are beginning to shop around for better deals on interest rates. The problem is that it might be too late for many card holders to swap out of high-rate cards.
Credit card issuers -- usually banks, but also such big companies as American Telephone & Telegraph Co. -- are turning down 60 percent to 70 percent of their applications, industry observers say. No change to that policy is likely, especially if interest rates fall farther.
"Issuers absolutely are judging applicants on tighter standards," said Denny Dumler, vice president of operations for Rocky Mountain Bankcard System, the largest issuer of Visa and MasterCard in the region.
The reason is simple economics. As interest rates decline, the income banks earn from the cards also falls. That means the issuer has less margin for risk and decides to weed out those applicants whose finances may be shaky.
"No doubt, some people are now being squeezed out of the market," said Kurt Peters, editor of Credit Card News in Chicago.
Mr. Dumler said that the rejection rate doesn't necessarily mean that 60 percent or more of consumers are not credit-worthy. "There is a lot of saturation in the market, and we see a lot of duplications of applications," he said. Nonetheless, the rejection rate is considerably higher than it was two years ago.
Issuers of bank cards say they have become ultrasensitive to the prospect of personal bankruptcies, which in 1991 had topped 880,400 nationwide through June, up from 725,500 in 1990 for the same period. Geri Detweiler, a spokeswoman for Bankcard Holders of America, said the main reasons applicants are rejected are the number of cards held and existing debt.
Every time someone applies for a credit card, an inquiry is noted on his credit bureau report. That is because card issuers run the applicant's name through a credit check for each application.
"Issuers look at that, and they have no way of knowing whether you got the card or not," Ms. Detweiler said. "But the possibility exists that you did, and that you could have a large credit balance available. They don't want to take that chance."
Her advice is to apply for one credit card at a time and wait until it is accepted or rejected. Applicants should contest the decision if they think they were rejected unfairly, she said.
Another reason for being rejected is excessive debt. An applicant who wants to refinance a big debt load should probably have one or more cards carrying the maximum credit, Ms. Detweiler said. "You probably won't be able to get a very-low-rate card, but you might be able to qualify for a 15 percent interest rate."
An issuer's rule of thumb on debt is that an applicant's debt should not exceed 28 percent of income. And that debt load includes all payments except mortgage or rent plus essentials such as utilities.
But not getting a card with an 8.5 percent interest rate is no cause for despair. The latest trend among card issuers is customized cards tailored to specific spending habits, Mr. Peters said.
For example, Mr. Dumler's bank -- Colorado National -- offers a card with no annual fee that maintains an annual percentage rate at 19.8 percent. But it also has an "Always Buy Colorado" option that charges an $18 annual fee and has a 17.7 percent interest rate. Those compare with the most common card, which charges a $12 annual fee and a rate of 18.6 percent.
"What works best for you depends on whether you carry a big balance from month to month [in which case the lowest possible interest rate is best] or whether you pay off your balance monthly [which would make a no-fee card more attractive]," he ** said.
The next step is to make sure the old account is closed and removed from your credit bureau report. An applicant should be able to cancel the old account -- after paying off the balance -- by calling the issuer and requesting that it be closed. Some issuers will do the entire transaction by phone.
The old credit card should be cut up after the new one is received. It needn't be returned to the issuer, but some credit experts suggest doing that. After about two months, the issuer of the old card should be asked to confirm that the account has been closed, Mr. Peters said.