Posted on 10/18/2008 6:58:57 PM PDT by RKBA Democrat
The impact of ultra-tight credit markets is hitting your credit cards, and you might not even realize it.
On The Early Show Tuesday, financial contributor Vera Gibbons explained that lenders are tightening terms in numerous ways, and you need to be aware of all of them to avoid possible trouble down the road.
Behind the changes is the simple fact that lenders want to protect themselves from bad debt, so they're tightening standards and practices in hopes of avoiding defaults by credit card users.
What are they up to?
LOWER CREDIT LIMITS
This is the biggest and perhaps most ominous change of all -- and something many consumers won't realize has happened to them until it's too late. Here's what's scary: You don't have to "mess up" in order for a company to lower your credit limit. Big companies such as American Express, Bank of America and others say they can and will change terms at any time, based on market conditions and the economy in general. Any "perceived risk" can also lower your limit. That includes a decline in credit scores or late payments on other bills.
How much are credit limits being cut? In some cases, the cuts are big, Some companies are lowering the limit to right above your balance, and as the balance drops (meaning, as you pay off your debt), the credit limit drops, too. That makes it VERY easy to exceed your credit limit.
Credit card companies DO have to inform you that they're lowering your credit limit, but who really reads those small-print pamphlets that come in the mail? Consumers may not know their limit has dropped until they go over it and incur a large fee. Even worse than a fee, however, is how this affects your credit score. When a credit limit is lowered, it appears that you're using a much larger percentage of your available credit. That lowers your credit score, making it more difficult to obtain a mortgage, car loan, or even another credit card.
INACTIVE ACCOUNTS CANCELLED
Something else to keep your eye on: Banks are cancelling un-used -- and thereby, unprofitable -- accounts to eliminate the costs of maintaining those accounts. An inactive card can also be cancelled if your risk profile changes. That also hurts your credit score. Again, you may not realize this is happened. If you just have the card on hand "for emergencies," you're probably not paying any attention to it. But now, more than ever, you want to protect your credit score and keep it as high as possible.
FEWER CARD OFFERS
If you consider all those credit card offers in your mailbox, you'll be glad to hear that companies are sending out fewer solicitations. HSBC has sent out 54 percent fewer offers this year; Citibank, 45 percent fewer. But if you don't have great credit, that's bad news for you. When you get those offers in the mail, it means you've been pre-approved for a card. But if you have to search out cards and apply on your own it can, once again, lower your credit score. Plus, it's simply a pain in the neck, AND it's getting harder and harder to qualify for good cards. You may have to settle for one with a much higher interest rate.
FEWER ZERO-PERCENT OFFERS
Used to be that no-fee, zero-percent credit card offers were a dime a dozen. Carrying a lot of debt? Transfer to one of these cards for free, and pay zero percent interest for a year. Now, if you even qualify, the offers are more likely to be for six months. You're also likely to pay a balance transfer fee of 3 percent or more. If you're looking for a good zero-percent card offer (AND you have good credit), Chase and Discover still have a few deals.
NO SECOND CHANCES
Mess up once and that's it, you're out of luck. Banks won't hesitate to increase your interest rate or impose big fees if you pay late, etc. It used to be that if you were a good customer, you could call and basically apologize, explain your mistake, and ask that the fee be removed or your rate re-adjusted. But no longer. Card companies are holding firm to their punishments, and no amount of cajoling will change their minds.
and no more credit cards for dogs either
I had no idea a credit card company, also known as banks, forced people to shop shop shop till they drop.
This seems counterproductive to me. Someone having issues with paying their credit card payment on time, gets slapped with higher interest rates. Or if they are late on only one payment.
Aren't they shooting themselves in the foot by making it harder for people to pay off their balances?
That said, I pay all of my bills on time. Thankfully!
I just called Wells Fargo today and got my rate lowered and they informed my that my limit has been increased by another 2K. Of course it help that I pay on time and in full every month. I think that if a person is a responsible borrower they should be able to weather this storm just fine.
Sounds like John Q. Public needs to do some “plastic surgery” (cut up his credit cards) and pay off his balance. Then the creditors won’t have to worry about doing business with him!
but if acorn has your dog registered to vote he will able to vote for the “one”
“All I can say is that I no longer have a single credit card. Nor do I care one bit what my credit score is.”
Sounds like the Dave Ramsey plan. Though I’m sure he didn’t invent it.
Yes, but they don't see it that way. They are going for the quick buck and accounting profits. As long as bonuses are paid this year, never mind that people will file bankruptcy and they won't ever realize their profits.
By lowering the limits, they get to charge over-the-limit fees, and raise rates to 30%.
How do they make money on you? Just by selling your name and address?
“Behind the changes is the simple fact that lenders want to protect themselves from BAD debt...”
Sounds reasonable to me. Good for them!
IMHO, credit card companies should be required to maintain separate tallies of principal-plus-baseline-interest and additional interest. Payments would be applied first toward the "additional interest" tally. From a customer standpoint there need not be a distinction, but in a bankruptcy proceeding a credit card company should IMHO not be able to use all its compounded interest to jack up its share of the recovered assets.
There is still a good possibility that credit card companies may be forced to cancel cards for a broad range of holders. If things get very bad, then they may have to suspend all credit cards.
In either case, since very large numbers of people are dependent on their month-to-month credit balance, living “behind” by a month, this might cause another phenomenon—the death of the bank check.
Though it is not a credit instrument, a massive surge in check overdrafts to pay monthly expenses, because of credit card cancellations, could force banks to discontinue checking nationwide. Conversely, retailers could cause the same result by just refusing to honor bank checks.
Nationwide, this would force most retail business to be done with debit cards or, to a much lesser extent, cash. And there is no choice in this, because only about 5% of our retail economy is backed by paper currency. Most banks only have perhaps $30-50,000 cash at any given time.
Ironically, because many transactions cannot be done with debit cards, this could cause massive deflation of paper currency alone. That is, debit transactions for $1 would cost $1, but perhaps only 10 cents, if paid for in cash.
And how many people do you think have more than $200 in cash at home?
For this reason, purely on painless speculation, it would probably be a very good idea to keep a few thousand dollars cash in a safe place in your home.
Ten years later, I am still debt free and own two homes. I've been to Thailand, Bora Bora and Europe in the last five years.
I guess you never rent a car or hotel room, or buy anything over the net. Credit cards are great if you pay off the balance each month, I would hate to have to carry that much cash around, plus rental car agencies, hotels, and many other places will simply not take cash or check.
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