Falling Credit Limits
Changes in the credit industry are coming, that much we know for sure. What they’ll be and the exact extent of the new laws can only be guessed at until they come into play – though we have a pretty good idea of what to expect. Unfortunately, the financial industry isn’t waiting on the side lines for the rules to fall into place.
Right now, many banks are jumping on the bandwagon of “premature recalculation” in an effort to cut their losses before any laws are laid down. Banks are getting hammered from all sides. Consumer defaults are way up, but at the same time, those consumers are using their credit more. Regulators are concerned with card-issuers’ soundness while at the same time dealing with Congress on their backs about how they’re treating consumers. It’s tough to be in the financial industry right now, we’re all feeling it.
But like anyone else overwhelmed with a great deal of stress and concern, the banking industry is reacting to everything that’s going on. That means recalculations are widespread. Rates are going up, limits are coming down, and accounts are just flat out being closed because it costs them money to keep credit cards on the books. If you’re deemed a credit risk, that rate could soar through the roof and that limit could plummet to the floor. All these changes that are occurring are not being sent with much warning.
The Fed allowed a comment period for consumers to weigh in on the proposed legislation. That period ended Monday, but the consumers were organized and vocal. They shouted down the financial industry – who claimed the changes would be costly for the industry and by extension, the consumers. Plus, the Credit Cardholder’s Bill of Rights cleared the House Financial Services committee last week. So, what it boils down to is that banks realize they’ve lost and they’re trying to make changes now before the legislation is finalized.
My problem with this is that banks are getting a little ahead of themselves. Yes, many of the clauses that allowed them to raises rates for any reason are going to be nixed, but consumers with good credit and repayment history with their card issuers are not immune to these sweeping changes. Banks are starting to evaluate risk quite a bit differently now. Gone are the days when paying your bill on time every month was enough to make you a “good customer” in the issuer’s eyes. Nope. Now you’ve got to make sure your balances aren’t too high and if they are, you better be paying more than the minimum.
Limit cuts are becoming the most common issue at the moment. Banks are trying to derail the damage to their balance sheets that comes with folks not paying their bills. But, these actions hurt the consumers who are paying on time and have been loyal to the credit issuer for years. This is especially problematic for those who carry balances because a limit cut will put that balance closer to the max limit – or worse, over the limit. In either case, the individual’s credit score is affected by that AND a limit cut is a red flag to other lenders. So, they’re cutting your limit and restricting your alternatives in an effort to meet their goals. Experts currently recommend that everyone check their limits at least once a month to be on the safe side.
On a personal note, I have a credit card that I rarely use save for some auto-debits every month. It’s paid in full and I get rewards off of the card. I have the limit set to a low one – $500 – because it’s not something I use often. Well, the credit card company decided that they were going to close the card because I was not a dedicated user. They may have sent a notice, I don’t know. Most of the stuff I get in the mail gets tossed. I prefer email communications. Nevertheless, imagine my surprise when I get a call from one of my companies that auto-debited stating my monthly payment was now past due and I needed to bring it current ASAP.
Great! So I look into the credit card it’s attached to, find out its closed, and get pretty steaming mad. I knew I hadn’t closed it, so I called to find out what was happening. The customer service person was ever so polite as they explained that I was costing them too much money to keep the card open since I wasn’t using it.
*Ok, that’s not quite how he phrased it, but I read between the lines.*
I have never thrown a fit with my credit card companies because I’ve always believed that you catch more flies with honey than vinegar; however, I was livid and I came pretty close. Because they had closed the account, my score had dropped 50 points and I found out another card had dropped my limit because of the score change.
I really tried to rein in my anger, but it was a domino affect. I had late fees, my score dropped, and another card had lowered my limit as a result. So, I got a manager on the phone and calmly explained the situation – although in hindsight, I might not have been as calm as I thought I was at the time. I was a little biased then. Still, I wasn’t overly rude. Fortunately for me, I worked at the company that housed this particular card and I knew one of the supervisors in the department. When the idiot I was talking to refused to help me, I asked to be transferred to the manager I dealt with when I worked there. Fortunately, I was able to get him on the phone, explain the situation, and get it fixed.
He reopened the account and refunded my card the amount of the late fees for the bill that hadn’t gotten paid. He also typed up a nice letter to the other credit card company explaining their error and faxed it to me so that I could try and get the other limit raised to its previous level. I told him that I appreciated his help, but wondered whether other customers were having to deal with similar issues and didn’t have the good fortune to know him. He said he’d gotten many complaints and it was something that was being worked on. Unfortunately, customer service reps are told not to give anything back right now. And even some managers were unwilling to help customers against company policy. The company, as a whole, was buckling down.
Anyway, the long and short of my story is that I finally got everything taken care of, but it was a very circuitous route. To avoid it, check your balances and contact your creditors immediately if they do drop your rates. It’s better than not knowing and having to deal with it after the fact.
Anyone else had similar problems? What do you think of the industry’s tactics?
Related posts:
- How Limits Are Determined
- What The Credit Reform Has Done To Me
- The Card with the Credit Score
- The Credit Cardholders Bill of Rights
- In Defense of Credit Card Fees
I had a similar problem with my now “dead” Bloomingdale’s Visa card 1 year ago. It was my backup card in case my primary credit card was lost/stolen They lowered my limit from $6,000 to $500 saying that I was a credit risk since I didn’t use it that much. As my credit score was more than 800 at the time, I told them to just close the account and opened a new card with USAA which, as most will tell you, is one of the best banks in the world if you can join. I know I was not calm on the phone call though and for once the customer service rep did not try to get me to keep the card.