What You Need to Know About Investing in Credit Card Companies
Credit card companies have rebounded since the 2008 – 2009 financial crisis, and now is a great time to begin investing in them. The industry’s best performing credit cards are seeing incredible leaps in percentages and consumers seem to be comfortable with spending again. All of this is great news for investors, but unless you’re familiar with the industry, it’s not recommended to throw your money away on something you don’t understand. Investing in credit card companies requires strategy and knowledge, so the following is a guide to help you better understand the complexities of this business.
Investopedia warns: “The biggest factor that affects this industry is how well consumers are doing financially.” Back in 2008, investing in credit card companies would have been a terrible idea. The financial outlook was grim, and consumers weren’t doing much spending because they were worried about the troubled economy. Thus, less money was being spent on credit cards.
Currently, there aren’t any worries about economic downturns, and consumers are spending. They’re spending on their credit cards, and they’re paying their bills. This is good news for anyone interested in investing. But, will consumer spending habits hold for the long term?
Public Finance reports “growth rates above 0.5% in each of the last four quarters.” The biggest contributor to that number is consumer spending, so that’s good news. Unfortunately, other markets aren’t doing so well, such as housing, but those markets don’t have a strong effect on credit.
Smart investors will keep their eye on consumer spending, and use those numbers to determine when to invest, and when it’s smart to sell.
How Credit Card Companies Build Their Value
Credit card companies use many differing tactics to build their value, which in turn increases their stock percentages. You’ll want to look for companies that have promotions that enamor new customers, and keep their current ones.
For example, some credit card companies offer 0% interest for balance transfers. There's no need to pay balance transfer fees with these cards, and new consumers can transfer over their debts.
Other examples of value builders include:
· Cashback and other rewards
· Free airline miles
· Money management cards
Understanding Credit Delinquencies
Unfortunately, late and non-payers exist, and they will have an effect on stock percentages. Credit cards are considered revolving credit, which means there is no fixed payment schedule. Whatever a consumer pays off, is automatically open for spending. This means, there are far more chances for delinquency than there are with a traditional loan.
In order to protect yourself, Investopedia recommends that you keep an eye on the Consumer Credit Delinquencies Bulletin, which is published by the American Bankers Association. Take advantage of this free information, and use it to make smart investing decisions.
Factoring Government Regulations
The last thing you’ll need to worry about is current and projected government regulations.
“Government regulations of any kind can impact the bottom line of credit card companies. For example, the fallout from the 2008-09 credit crisis brought interest in the consumer financials industry and how the government can improve the credit practices of the companies involved,” writes Investopedia.
It’s important that you familiarize yourself with current laws and regulations governing credit card companies. Equally important is ensuring the company you’re investing in follows these practices. You will lose your investment if the company you’ve invested in decides to take the law into their own hands, and is caught doing so.