Credit cards with the happiest users

Credit cards aren't created equal. Neither are credit card companies.

A 2008 consumer survey by J.D. Power and Associates recently confirmed what the credit-savvy already know: American Express makes its customers happier than any other issuer.

"Happier" is relative, of course. The survey of nearly 8,000 consumers reported that AmEx scored 783 points out of a possible 1,000 when judged on five issues:

• Interaction (such as dealing with customer-service reps or the issuer's Web site).

• The billing and payment process.

• Fees and rates.

• Reward programs.

• Benefits and services.

If we were using an academic grading scale, American Express would have earned a C-plus. But AmEx and the No. 2 scorer, Discover (751 out of 1,000), are ahead of the industry average (724) and the rest of major U.S. credit card issuers, including Chase (719), Citi (710), Bank of America (692), Capital One (678) and HSBC (bringing up the rear at 667).

American Express and Discover have distinctly different approaches to the credit card business and different target audiences. AmEx goes after the affluent crowd that wants plenty of perks. Discover appeals to a more middle-income audience that values simplicity.

The two issuers "come at it in different ways," said Rocky Clancy, J.D. Power's executive director of financial services, "but the value proposition is very clear."

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For example:

• American Express gets it right by offering rich rewards programs and special benefits, such as concierge services and discounted tickets to events. American Express users pay the highest fees overall (the annual fee on a gold card is $125, for example), yet customers also report the highest satisfaction with the fees they pay. Clearly, users believe they're getting value for their money.

• Discover, on the other hand, keeps it simple. There are no annual fees, and the benefits center on a cash-back program that Discover pioneered. Discover also manages to irritate its customers less than other issuers do.

Discover had about half the complaints of the other cards issuers: 5% of the consumers surveyed reported having problems with their account in the previous year, Clancy said, compared with 10% industrywide.

When users did encounter trouble, Discover did a better job of resolving problems to the customers' satisfaction.

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The J.D. Power survey, now in its second year (AmEx and Discover ranked highest in 2007, too), also turned up some interesting tidbits that indicate credit card users are pretty smart folks. For example:

• Hotel stays were voted the most satisfying reward. For good reason. There are typically few, if any, restrictions for using rewards points to get hotel rooms, especially compared with the hoops you have to jump through to score an airline ticket using frequent-flier miles. Not only are free rooms easy to snag, but you typically get more bang for your reward buck: Hotel stays often translate into 4 cents or more for each point, compared with one or two cents typical for each frequent-flier mile used.

• Cash back is the next most popular reward. Here the appeal is simplicity: You spend, you get cash in your pocket to deploy any way you like. The best cash-back cards offer you 1% rebates on all your spending, with higher rates of return for specific purchases, such as those made at grocery stores or at co-branded stores.

• Most users value the right cards. The card users surveyed were about evenly split between "transactors" -- those who pay off their balances in full every month -- and "revolvers," who carry a balance. Three-quarters of transactors (77%) chose their cards based on rewards, just as I advise in "The 15 most rewarding credit cards." By contrast, nearly two-thirds of revolvers (65%) choose their cards based on interest rates and fees, which is exactly the right approach for this group.

• Those who actually use their rewards are way happier than those who don't. Duh, right? Except too many credit card issuers, and users, haven't figured this out yet.

Continued: It's often tough to cash in rewards

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