Posted on 10/05/2008 5:22:56 AM PDT by RKBA Democrat
Credit-card holders, you’re in for a rough ride.
As the financial crisis deepens, some experts say card issuers will be even quicker to raise interest rates, drop people’s spending limits and tighten up credit.
“You can definitely expect that banks will tighten up the credit-card market,” said Bill Hardekopf, chief executive officer of LowCards.com. “We’ve now moved into a more risky and tenuous financial environment.”
Even consumers who have good credit habits are expected to suffer some as credit-card issuers move to minimize their exposure and maximize revenue.
“What’s happening—and will continue happening until things get better—is credit-card companies are looking harder at who they’re accepting,” said Justin McHenry, research director at IndexCredit Cards.com.
“What has happened to some extent, and may continue, is holders may find their credit-card carrier playing a little rougher,” he said.
Capital One Financial Corp., the McLean-based financial-services company that is one of the nation’s largest credit-card issuers, is making adjustments in response to economic conditions.
“We have adapted our underwriting models as the economic environment has changed. And we have gotten more conservative on credit-line assignments and line increases,” spokeswoman Pam Girardo said.
Some say the recent meltdown on Wall Street only worsened the situation and may have accelerated the probability that a lot of cash-strapped consumers will default on their credit-card debt unless the government throws them a lifeline.
Braun Mincher, a Colorado trend pundit and financial literacy advocate, said the economic crisis will hit consumers hard soon and will make it more difficult for struggling families to become financially stable.
Many consumers already got hit hard by the housing-price tumble and mortgage foreclosures, he said.
Now bank failures and the deteriorating economy have contributed to a tightening of credit that has left some people without even home-equity loans to fall back on.
Many are now eking out a living using credit cards, Mincher said.
Credit-card companies, meanwhile, are looking to minimize their exposure and pump up revenue in this flailing financial environment, Mincher said.
As a result, many are lowering people’s credit limits and doing other things that hurt credit-card holders, Mincher said.
If a credit-card company has any concern about a customer’s credit behavior, it may slash the person’s credit card limit from $20,000 to $10,000, he said. Now, the person has fewer resources to make ends meet.
Or, if a person has a $500 limit on a card, the company “would rather give him a second card than raise the limit another $500,” he said. “There’s more opportunity to charge fees.”
Instead of one account, now the customer has two. If the person goes a day late on one card, the carrier has two accounts on which to raise rates.
Bankrate.com senior financial analyst Greg McBride and some other industry players don’t see a direct link between credit-card increases and events on Wall Street.
“This is stuff that has been happening for over a year,” McBride said.
But LowCards.com’s Hardekopf said the stormy events on Wall Street indirectly affects credit-card holders because of the riskier financial environment.
“That environment definitely is having an effect on how banks are operating,” he said. “Banks are having to rethink their business strategy. We are seeing some higher rates and lower limits. We’re not necessarily seeing larger minimum balances.”
Credit limit decreases are not happening across the board, Hardekopf noted.
But issuers will be “quicker on the trigger raising rates and lowering limits based on your credit score changing. If you do anything to make your credit score go down, your credit risk goes up” and you may see an increase in your annual percentage rate.
Also, what’s considered good credit has probably been tightened, he said. Those who fall within the “excellent credit risk” category and who get the best rates are fewer in number.
Credit-card reform measures pending in Congress may help consumers some, Mincher said.
But there’s “a very likely potential” that many people living on credit cards will wind up in default.
The magnitude of the defaults may rival that of mortgage loan defaults, he predicted.
“I’m not saying it definitively, and I’m not saying that it’s happening yet,” he said. “I think it’s possible.”
Stormy times on Wall Street could “make this happen quicker,” he said.
It’s like the trickle-down effect, he said. “One thing affects the other.”
Consumers Union in Washington last week sent a letter to Congress urging it to include credit-card industry reforms in any Wall Street bailout package.
“Because the economy is so bad, people are using their credit cards even to pay rent and buy groceries,” spokeswoman Pamela Banks said.
“Cash-strapped consumers shouldn’t continue to be gouged by excessive credit-card rates and fees by the same financial institutions that will benefit from this bailout,” the letter stated.
She said if credit-card companies keep raising interest rates and fees, consumers will never get caught up.
“Why not help the very consumers that will bear the burden of the bailout?”
Happily, there's an effective way for credit card holders to deal with this. Pay off your balance and get rid of your credit cards. Failing that, never carry a balance on your credit cards. Let the debt slavers choke on their business model.
Man that bums me, I was going to go out and buy a car today on my credit card. < /sarcasm>
Yes I know about "personal responsibility" but the credit card companies are BLOOD SUCKING WHORE PREDATORS! It is downright EVIL how they look to ENSNARE people and take advantage of them.
"Woe until them that take advantage of the poor."
Funny people hate credit card companies cause they will not give them free money. Wonder how people survived before credit cards. Oh I think I remember my parents paying with something called cash or they did not buy it.Prudent.
Um... falling back on HELOC loans????? Anyone having to do that is either unlucky, stupid, or both, and does not need a bailout.
You didn't think the $850B bailout would be the end, did you? Ha!
It's only the beginning!
Bs this would be nothing more than "cutting off the nose to spite the face". I look for more credit card offers, since the banks are cut off from their gold pot of selling and reselling home mortgages, they need to do something to bring in money to pay those trillion dollar president salaries.
I had a Providian card and even though there were some complaints about them, I never had a problem UNTIL WaMu bought them. Not only did WaMu raise my interest rate for NO REASON at all, the financial sites that recommend carrying a small balance from time to time while still paying over the minimum and on time basically did not apply. I did all the right things but had my rates increased.
THEN because of my good history when I asked for a decrease in the limit, they said that they review records and only then do they offer a change. Thing is, they had NEVER reviewed my record and offered me a change in rate, going all the way back to 2002 or 3. Then they reviewed my higher balance (in spite of my score being good and my history being immaculate since being a customer (and in all outside accounts since) and they raised my rate to 27.99 percent!
All for absolutely no justifiable reason. They did this to a lot of people. There was no ‘reason’ they just jacked up interest rates. Thankfully, I got a personal loan with a tiny interest rate and paid it off before they had a chance to leech me of funds.
I’ve been able to get a re-finance on my auto loan (lower payments, same timeframe) and a better credit card in the last month, in spite of the ‘crisis.’
To paraphrase the bible “the debtor is a slave to the lender”.
Personally I never carry a balance on the VISA, and if it weren’t for “pay at the pump” gasoline and internet service fees, I would never use the card at all.
Debt slavers? How do you figure? If you voluntarily make an agreement, that’s not slavery.
You are confusing “lack of self discipline” with “slavery”.
Before the ink was dry, California was whining they wanted a bail out, too.
Wow. I think their interest rates are high, too. But I don't have to borrow if I don't want to. Typically, a "slave" doesn't volunteer for the gig. And, typically a slaver uses more than slick brochures to get his "customers." So "Tax Slaver" would be a reasonable metaphor. "Debt Slaver" is quite over the top.
OTOH, your advice about how to handle it is right on. I just paid every CC balance I have down to zero yesterday. We're hunkering down here at the ModelBreaker residence for (1) The coming recession and (2) A 50/50 chance of a socialist takeover of the country. Socialists are REALLY good at high interest rates.
Me too. But I hear the card people call people like us who never carry a balance except when we get a 1.99$ offer with no transfer fees,,,the card people call us “deadbeats”.
They love the late payers. I swear, they are the most predatory people to those who don’t know how to play their game.
Cut them up. Mail a request to cancel your account with a check for the payoff amount. Get a postal delivery confirmation on your letter when you send it.
“Wonder how people survived before credit cards. Oh I think I remember my parents paying with something called cash or they did not buy it.Prudent.”
And those who are wise will return to that same model of economic self-sufficiency.
A generation ago, those who charged the interest rates that the CC companies now charge were labeled “loan sharks.” And they were considered the scum of the earth. That those who allow themselves to become debt slaves are stupid, or at best ignorant, does not excuse the actions of the debt slavers who are engaging in usury.
Cardinal rule #1: Always pay your cc bill via the card’s website. Never, ever trust a mailed check, even if it’s a bill pay service check. Card companies have been known to hold incoming mail (and gotten sued over) until just after the late date.
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