How much would you pay to keep your credit card?
For Randy Dawson, a new $29 annual fee pushes the limit. But he will probably pay it to keep the Bank of America card he’s had for five years.
“I feel as though they’re holding me hostage over my credit score,’’ said Dawson of Johns Creek, Ga.
But closing an account has repercussions, since the average length of your credit history and total amount of available credit factor into your credit score.
Annual fees for credit cards had become rare, but more cardholders may soon have to decide between paying them or forfeiting their cards. Bank of America said it’s “testing’’ fees of $29 to $99, starting next year. Customers were selected based on “risk and profitability.’’ The bank declined to explain further.
Analysts say the move is a harbinger of things to come.
“They’re trying to understand what the market will bear in terms of annual fees,’’ said Ben Woolsey, director of consumer research for CreditCards.com.
Bank of America’s experiment comes as the industry searches for ways to make up the revenue it stands to lose as a result of new regulations. In February, banks will be limited in how and when they can raise interest rates and fees.
That has left banks examining their books for accounts that aren’t very profitable - cardholders who never carry a balance, for example, and never pay late fees or financing costs.
There are of course credit cards that already charge annual fees, including rewards cards tied to specific airlines or hotels. Cards marketed to those with poor credit also come with a list of eye-popping fees. But for many of us, annual fees have become an alien concept.
It’s why the new $29 annual fee came as a shock to Pamela Jones-Tintle, who never carried a balance on the card she’s had for 18 years. She’s leaning toward closing the account.
“My top concern is my credit score,’’ said Jones-Tintle, of Pomona, Calif.
Not only can closing an account lower your credit score, but opening a new one can, too, since it indicates you’re in the market for new credit.
“To get a new card and cancel this one would be a double strike,’’ Dawson said. A lower credit score could mean the mortgage refinancing he’s contemplating would cost more.
Still, Dawson has his limits. If the fee were more than $50, he’d walk. That appears to be the line in the sand Bank of America aims to identify. Just how much are consumers willing to pay?
Chase says it does not have any similar plans to test annual fees, and Wells Fargo and Citi declined to speculate on future practices.
But Greg McBride, a senior analyst with Bankrate.com, says other issuers are likely to start charging annual fees, too - perhaps on accounts that don’t generate revenue, to avoid alienating the more profitable customers.
Candice Choi is an Associated Press personal finance writer.