Terms could change even for best customers
Turmoil in the mortgage market means that "it's a matter of when, not if" banks will change your credit card terms, says Jose Garcia, a senior research associate at Demos, a think tank in New York.
Banks' massive write-downs for their exposure to troubled mortgage securities - coupled with broader economic turmoil - mean they're more aggressively trying to boost profits, says Garcia. Traditionally, credit card operations have been a cash cow for banks.
Many institutions, to limit their exposure to bad loans, have gotten pickier about approving credit and granting high limits to new customers. Some are even raising interest rates.
Greg McBride, a senior financial analyst at Bankrate.com, says that "risk-based pricing isn't anything new," but increasingly "may be applied a little more stringently, thanks to the credit crunch" in the mortgage industry.
Overall, rates are falling for card holders with good credit and should continue to do so, McBride says. Variable-rate credit cards averaged 13.5 percent as of Nov. 21, compared with 14 percent on Sept. 12, before the Fed's first rate cut, according to Bankrate.com.
Yet consumers with poor credit or who don't pay their bills on time likely won't be seeing lower rates. Over the years, the penalty rate imposed on customers who miss a payment or go over their credit limit has crept up to 33 percent.
Even consumers with good credit scores won't be spared, though, as some issuers reduce credit limits to reduce their exposure.
Curtis Arnold, founder of CardRatings.com, a card-comparison site, says he's hearing more complaints from people who've had their limits lowered by as much as 50 percent.
Arnold had his credit limit lowered earlier this year. He carried $17,000 debt on one card - from using low-rate balance-transfer offers to finance a car purchase - when the issuer lowered his limit by a few thousand to $17,700.
The concern with lower credit limits is that it could hurt your credit score, because part of your score is based on how much debt you carry compared with your available credit. The best way to deal with a lower credit limit is to "put your card in the drawer and pay as much as you can," says Gail Hillebrand, a senior attorney at Consumers Union, an advocacy group.
Arnold says his experience "left a bad taste in my mouth" and made him not want to do business with the lender.
Delinquencies in the credit card business are inching up, though not as dramatically as with other consumer loans, according to Moody's Economy.com. A growing number of issuers are increasing their reserves for credit card losses, a sign they're anticipating defaults, the result of chronic delinquencies, to rise.
WBJ Web Partners
Most Recent
Most Recent
0 Comments