Thursday, February 28, 2008

Credit Cards Tighten Tactics

In a recent Smart Money article, Credit Card Companies Put Tighter Squeeze on Cardholders, Trent Charlton is racing to pay down his Amex. One would think that is a good thing, but Amex is reducing his credit limit every time he knocks off a chunk of debt; when he was down to $14k they lowered his credit limit from $20k to $14k, then he lowered it to $10k and they lowered his limit to $10,300. This, as PiggyBankBlues readers know, lowers your credit to debt ratio, and therefore lowers your credit score and can raise your interest rate. And it's not just Amex, his GE Money card followed suit.

So what is going on?

    ... Faced with a growing wave of delinquencies, they're tightening lending standards considerably, focusing on card members they perceive at highest risk of default. (Chasing balances — the industry term for lowering a customer's credit limit as they pay down their balance — is one way to control that risk.) Unfortunately, these days lenders are expanding the definition of high risk to include many consumers who would have been considered good customers just months ago. Now, cardholders can be subject to greater scrutiny based on where they live or what type of business they run.

And get this, the big banks like Chase, Bank of America, and Citibank have clauses that allow lenders to change a users terms simply based on "general market conditions"-- they must be having a field day right about now!

3 comments:

Blake said...

Wow, so let me get this straight; By paying off your balance your credit score could actually go down?? That's downright ridiculous! I've never heard of anything like that before, thanks for posting that.

PiggyBankBlues said...

blake, i hear ya. when i read the article i was depressed, it's so hard to play fair with them! and it's the "good" credit card companies...

Ms. M&P said...

The standards on card companies are so lax! The whole industry should at the very least be under some more sunshine laws for greater transparency. It makes me ill how they can jerk consumers around. It makes me especially sick that they target populations vulnerable to their tactics. So unfair.