COSTA MESA, Calif.—At least one in five credit card customers are carrying the wrong card, according to a new research study.
The J.D. Power 2016 U.S. Credit Card Satisfaction Study found consumers are not choosing cards that offer rewards best aligned to their purchasing habits.
“While choosing the wrong card does not necessarily affect customer satisfaction, it does have financial consequences for credit card companies and issuers. Customers with the wrong card spend less per month on their primary card than those who have the right credit card ($783 vs. $1,035), use their card for a smaller portion of their monthly expenditures (37% vs. 45%) and are more likely to switch cards (21% vs. 9%),” said Bill Hardekopf, CEO at LowCards.com, Birmingham, Ala.
Customers tend to select credit cards due to their rewards program, but 20% of consumers would be better off with a different rewards card or a card with a lower interest rate that does not offer rewards, the study shows.
“These cardholders are either not spending enough to earn rewards that would offset their annual fee, are paying too high of an interest rate, or are simply not using the rewards associated with their card,” said Hardekopf.
The study shows consumers have the toughest time choosing airline co-branded cards, which can charge an annual fee of $75 or more. In fact, 44% of airline card customers have the wrong card because they do not spend enough to make the card worthwhile, have not used their airline benefits in the past 12 months, or have not redeemed any rewards in the past 18 months.
“Since these cards carry such a high annual fee, customers have a lower overall satisfaction than those with the right card (768 vs. 800 on a 1,000-poing scale),” said Hardekopf. “These customers also spend less per month on their card ($1,150 vs. $1,851) and are more likely to switch cards (16% vs. 8%).”
“The percentage of people carrying the wrong card is alarming, and that doesn’t even include the 30%-50% of people who have the right card, but could find a card that’s an even better fit for them if they looked at other options,” said Jim Miller, senior director of banking at J.D. Power. “Regardless of why customers have the wrong card, they are overall less satisfied with their card than those who have a card more appropriate for them. Carrying the right card is beneficial for both customers and card issuers.”
There are a number of reasons people may be carrying the wrong card, according to Miller. Their needs may have changed since they obtained the card, they may no longer use the rewards, or the card's fees or rewards programs may have changed. Additionally, consumers sometimes sign up for a card because of a promotional offer, but the card is not the right one for their long-term needs.