I’ve been spending some time gazing into my credit card crystal ball, and I’ve noticed a few trends on the horizon. This past year, it seemed like the economy was either riding high or scaring us half to death. Stock prices would go up and then they’d go down. And what about interest rates? They’ve been on the rise, but now there’s speculation that this might slow down as 2019 progresses.
Let’s take a look at the credit card trends for 2019. And along the way, I’ll show you how each trend could impact your credit.
Near-Prime Consumers Get Easier Access to Credit
There are quite a few signs that point to looser credit standards in 2019. TransUnion’s 2019 consumer credit forecast predicts that the consumer credit market is poised for growth, and this includes the number of near-prime consumers who will be able to get credit cards.
The definition of subprime varies among lenders, but it’s usually a FICO score below 670 or so. TransUnion’s forecast predicts that giving subprime consumers access to credit might lead to a slight increase in credit card debt.
One of the reasons near-prime consumers will gain more access to credit cards is the introduction of two new credit score helpers in 2019: the UltraFICO Score and the Experian Boost tool. The UltraFICO Score includes recent banking activity, such as checking and savings accounts. If you’ve done a good job managing your bank account, the UltraFICO Score gives you credit for that, and for some people, it might be enough to push their FICO score up into prime territory.
The Experian Boost tool allows consumers to include utility and cellphone payment histories. The catch is that your lender has to use Experian to pull your credit report, because that’s the only bureau offering it. But still, it’s a sign that the bureaus and the issuers are trying to be more inclusive when it comes to credit requirements.
[Read: Balance Transfer Credit Cards.]
Interest Rates on Credit Cards Slowly Rise
Your credit card’s variable annual percentage rate is tied to the prime rate. When the Fed raises short-term interest rates, known as the federal funds rate, it has a ripple effect. For starters, it makes borrowing money, in general, more expensive. In this scenario, compound interest makes your balance grow and grow. And grow some more.
Why does the Fed think it’s a good idea to raise rates? The hope is that this slows inflation, which is a good thing. But if you’re carrying credit debt, an increase in your APR is a bad thing. Try to get out of debt as soon as you can. If you have an excellent credit score, then check out a balance transfer credit card that’s offering a zero percent introductory APR.
But there’s an upside to increasing rates, too. Interest rates on savings and investments are also increasing. That’s the happy side of compound interest, so take advantage of it while it lasts.
[Read: Rewards Credit Cards.]
Consumer Debt Continues to Increase
The most recent totals from the Federal Reserve’s Consumer Credit G.19 report show that consumer revolving debt, which is primarily credit card balances, jumped $9.2 billion from September 2018 to the end of October 2018. This equals an annualized growth rate of 10.7 percent.
Remember, that’s a 10.7 percent increase in one month, and we’re talking billions here. I almost hate to say this because I’m rooting for the near-prime consumer to leap into prime territory and get better rates. But honestly, as credit becomes more available, consumer credit balances will continue to go up. I don’t believe the debt situation is as dire as some predictions I’ve read, but I do think that 2019 needs to be the year of financial literacy for all.
Look, there will be a portion of near-prime consumers who will do great with their new credit cards. But there will also be a portion who will have trouble making payments. Increased spending certainly helps the economy, but it’s going to be important for those who are getting used to having credit to have a budget and stay out of debt.
[Read: The Best Credit Cards for Fair Credit.]
Credit Card Rewards Evolve
For predictions, credit card rewards are always low-hanging fruit. For years, rewards have been pretty great. I do still think that rewards will continue to be somewhat generous, but the rewards offered might start taking on a different form.
For example, Citi has announced a no-annual fee credit card called the Citi Rewards+. This card offers a variation on the ThankYou rewards program, including two ThankYou points per dollar spent at gas stations and grocery stores (up to $6,000). You get one point per dollar on other purchases.
But here’s the new approach: If your purchase is $4, then instead of four points, your dollar amount is rounded up to 10 points. If your purchase is $204, you get 210 points.
This approach is likely to encourage consumers who don’t spend a lot to get this rewards card and use it for even small purchases. The idea makes sense because near-prime consumers are a different market and they’re unlikely to be big spenders.
You can expect rewards to continue targeting lifestyle categories, such as dining, entertainment, groceries, and Uber and Lyft rides. The Capital One Savor Cash Rewards and SavorOne Cash Rewards credit cards are examples of credit cards already in this space. But as the year goes on, you’ll also see other credit card issuers offering rewards promotions in these categories.
So, basically, rewards will still be around, but losses due to credit card rewards hackers are piling up for the big issuers. This suggests that we’ll see smaller sign-up bonuses to discourage churners from applying for rewards cards simply to earn the bonus. The focus in 2019 will be on the rewards and encouraging consumers to keep using the credit cards.
Lastly, don’t forget that I mentioned we need make this the year to encourage financial literacy. The more consumers who know about credit and debt, the more likely they are to stay financially healthy, regardless of changes in the economy.
More from U.S. News
How Much Credit Card Debt Is Too Much?
Is the UltraFICO Score Good or Bad for Consumers?
Why Did My Credit Card Interest Rate Increase?
4 Credit Card Trends for 2019 originally appeared on usnews.com
