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Credit card issuers set to flood mailboxes


Here's a tip on how to cope with the end of summer: Buy a bigger mailbox.

Recognizing there's not much point pitching consumers while they're in vacation mode, the credit-card industry was eagerly awaiting the end of the Labor Day weekend to launch its second mass-marketing onslaught of the year, a push designed to tempt millions of borrowers to open or switch accounts before the holiday season.

"Expect your mailbox to be flooded," said Gail Wasserman, spokeswoman for American Express. "People want to capture your heart, mind and wallet as the Christmas season approaches."

The difference this fall is that credit card issuers, working against a backdrop of rising interest rates, are resorting to more gimmicks, more short-lived "teaser" rates and more fine-print legalisms than ever.

"I attribute some of the misleading marketing pitches to the industry's heavy competition. It's a saturated market," said Ruth Susswein, executive director of Bankcard Holders of America, a consumer-education agency in McLean, Va.

To stand out from the junk-mail clutter, many issuers are resorting to old-fashioned marketing tactics, such as preapproved applications and envelopes with a Publisher's Clearinghouse excitement to them .

"The consumer today has the best vantage point that they've had in a very long time," said American Express' Ms. Wasserman. "But it is a very complicated marketplace."

For instance, by reading the fine print of a credit offer you might discover:

* The single-digit interest rate touted in big print on the envelope and the cover letter is only an introductory rate. Some rates remain in effect a full year, but many last only six months. After that, the rate jumps sharply. As a result, the rate on that account you open in September and load up during the holidays could jump in March -- when millions of people are still chipping away at the balance.

* Some issuers stake out their right to impose penalty fees if, for instance, you pay your bill late or overstep your credit limit. In some cases, those fees can run $10 to $18 a month, Ms. Susswein said.

But that's only part of the story.

In recent months, some lenders such as Citibank, by far the nation's biggest issuer with nearly $41 billion in charges, and AT&T;, the sixth-biggest, have adopted or announced that they will penalize customers by boosting the interest rate, not just levying a fee.

Citibank already can raise its rate from 18.4 percent to 21.9 percent, while AT&T; has said that starting this month it could hoist its rate from 18.9 percent to 20.9 percent, said Robert B. McKinley, president of RAM Research in Frederick.

Taking the concept one step further, Capital One has adopted a risk-based system in which it will routinely evaluate its customers' creditworthiness. If it finds a customer is shouldering more debt than before, it can boost the interest rate -- even if the customer had a sterling record until that point.

* Look closer if the big print on a preapproved application suggests you're guaranteed a hefty credit limit. If you follow the bouncing asterisk to the fine print, you'll probably find the words "up to" precede that dollar figure and that a smaller amount -- perhaps only three figures -- is truly guaranteed. If you aren't careful, you might discover that tempting offer severely trims your access to credit.

(Paring credit limits isn't always bad, of course. Some issuers grant borrowers a $50,000 credit limit, effectively scaring away other issuers because all that available credit, even if never used, is a potential liability and a credit risk.)

* The majority of issuers base charges on average daily balances for one billing cycle, but a growing number of accounts now use the more expensive "two-cycle" methods, which use two billing cycles. These methods tend to work against the borrower who periodically pays off the balance and then enjoys an interest-free grace period; using these methods, those new purchases accrue interest anyway.

Among issuers using two-cycle billing on some accounts are Discover, currently the second-biggest in the industry with $27 billion in outstanding charges, No. 4 First USA, and No. 7 Household Bank of Salinas.

* A few issuers are whittling down the grace period, which typically gives borrowers a 25-day interest-free ride if they pay their balances in full.

* About three-fourths of lenders have switched to variable rates in recent years, with the majority of those pegged to the prime rate. A few now are tied to the LIBOR index, an international cost-of-funds rate comparatively few consumers are aware of, let alone track.

* And just because a credit card company covets your business today doesn't mean the love affair will last. First USA, whose portfolio ballooned 77 percent from June 1994 to June 1995, has been catching flak this year for trying to weed out less-profitable customers who regularly pay their bills or use the card infrequently. One tactic: It threatened to cancel some accounts if users didn't charge at least $2,500 or transfer at least a $1,000 balance from another card.

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