Card Companies Have Tightened Their Purse Strings |
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by: Janna Weiss
Have you looked at your credit card statement lately? If so, you might have received a nasty shock. Credit limits are falling and interest rates are rising as a result of the credit crunch. If you enjoyed low interest rates before, don’t be surprised if they double in the future.
Many card holders have protested the changes made to their accounts. Before the credit crisis, card companies were sympathetic to the occasional late payment. They would extend the grace period on purchases or waive late fees and penalty interest.
Not anymore. Now, card holders who miss a payment by one or two days find themselves choking on 30% interest rates. Pleading calls to card companies are largely unsuccessful; customer service agents apologize, but claim that they are simply unable to waive any fees at this time. That’s because banks and other lenders, scared silly – and justifiably so – by the current economic climate, are tightening their purse strings and their standards. To maintain good relations last year, card holders simply needed to pay in a timely manner and communicate with their lenders when a late payment was unavoidable.
Now, minor payment infractions are enough to make card companies drop your limit like a hot potato. And you might notice your limit shrinking even if you’ve always paid on time. If your credit cards are almost maxed out, companies will reduce your limit as a precautionary measure. The less you can charge, the less they risk if you default on your debt.
Credit limits aren’t the only casualty of recent days. Approval for credit is also low. Whereas a credit score of 720 was considered excellent a year ago, lenders now want to see a 740 or higher before they’re comfortable offering a loan with good terms. And if you work in a shaky industry, like home building or mortgage brokering, expect even more hurdles when you’re applying for new credit. Card companies know what you do for a living, and they’ll clamp down on your credit if they think your job could be at risk.
So what can you do if you need credit? Get serious about timely payments, and keep your card balances low. To keep your accounts from getting closed due to inactivity, use each card at least once every three months. Open new accounts with better lenders, but don’t close your old accounts; doing so decreases your debt to credit ratio and, in turn, your credit score. Finally, ask your bank if they’ll work with you. If you’ve been a good customer, they won’t want you to take your business elsewhere.
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