Card Wars: Take a Good Look Before Taking Bait

Remember the “gas wars” of the late 1960s, when service stations gave you knives and highball glasses with a fill-up? Credit card companies, battling for market share in a glutted market, have been staging the 1990s equivalent.

And the credit card wars heated up this month with the entree of two big consumer products companies--General Motors and General Electric. General Electric says it will give cardholders big discounts on everything from appliances to toys for using its card. GM contends that it will give you a car--if you charge enough.

Over the next several weeks, consumers are likely to be inundated with information about these offers through direct mail, television, radio and print advertisements. But before you decide to take the plunge and add a couple of new cards to the growing plastic collection in your wallet, industry experts suggest that you take a closer look at what’s being offered.

The “prizes” are getting decidedly better, but price remains the real issue, experts note. Consumers who fail to realize that could easily spend more to collect their rewards than they’d pay to simply buy them.

“Issuers like to keep you distracted,” said Robert B. McKinley, editor of CardTrak, a credit card newsletter published by Ram Research & Publishing Co. in Frederick, Md. “They hope you perceive that there is greater value with their card so you don’t pay attention to the cost.”

The cost? GM is offering its no-fee card at a rate that floats 10.4 percentage points over the banking industry’s prime rate. The current card rate is 16.4%. That’s almost 2 percentage points below the average rate in the industry, but it’s still no bargain, said Mary Beth Butler, a spokeswoman for Bankcard Holders of America, a consumer credit research and advocacy group headquartered in Herndon, Va.

Consumers who pay the minimum amount on a $1,000 revolving balance will pay about $150 a year in interest versus about $105 annually in interest charges on a 12.5% card, Butler said.

And cards with rates as low as 12.5% are not hard to come by today. About 500 companies now offer cards at rates below 15%--some as low as 8% and 9%, McKinley said.

Still, three groups of consumers might benefit from the GM card--those who cannot qualify for lower-rate cards, those who pay off their balances each month, and those planning to buy certain GM cars within the next seven years.

GM is sending out pre-approved applications to about 30 million individuals this month, which indicates their credit standards are pretty lenient--possibly more lenient than issuers of other low-rate cards, McKinley notes. And since this card has no annual fee, credit is free for those who pay off monthly balances within 25 days.

GM is also offering “rebates” of 5% to 10% of the amount charged. These rebates are actually credits that can be used only to buy a GM car. But they can be stored up for as long as seven years and, at least in theory, could completely pay for the car.

The one catch: You can’t use the credits to buy GM’s hottest product--the Saturn. GM doesn’t mention that the Saturn is excluded from the offer in cardholder literature, by the way. The company says cardholders should realize that, since the Saturn isn’t specifically included .

GE is charging a $25 annual fee at a time when no-fee cards are a dime a dozen. And the interest rate is also comparably high. It floats 12.4 percentage points above prime, which makes it 18.4% today.

GE says you should forget about those costs because the card can provide its holder with “$1,000 or more a year in real savings.”

How so? GE gives cardholders $10 in “rewards checks” for every $500 in purchases. These coupons can be used like cash at about two dozen participating retailers, airlines, hoteliers, cable and phone companies.

These firms, which include Kmart, Toys R Us, Macy’s, Kinney Shoes, Northwest Airlines, HBO, Cinemax and Sprint, will send GE cardholders an additional $10 in savings certificates each quarter, “regardless of whether or not you use the card,” according to a GE spokesman.

The catch? The $10 coupons are good only on purchases of $50 or more.