First came the mortgage crisis. Now comes the credit card crunch.
After years of flooding Americans with credit card offers and sky-high credit lines, lenders are sharply curtailing both just as an eroding economy squeezes consumers.
The pullback is affecting even credit-worthy consumers and threatens an already beleaguered banking industry with another wave of unprecedented losses after a gilded era in which it reaped near-record gains from the business of easy credit that it helped create.
I’m still getting the offers, and certainly I’m not alone in that.
Generally speaking though, considering how much debt the average American has on their credit card, I’m having trouble seeing how this is such a bad thing.
[i]And lenders, overall, are slowing the flood of mail offers to a trickle with moves that would translate for the average American household into about 13 fewer pieces of credit card junk mail a year than its peak in 2005. Mail offers to new and existing customers are on pace to drop below 8.4 billion pieces, the lowest level since 2004, according to Mintel Comperemedia, a direct marketing research firm.[/i]
Every cloud has a silver lining.
We still had to ask Citicard earlier this year to reduce our credit line after they had increased it without asking.
I’m still getting offers from banks that I think have gone belly up! Isn’t WaMu in Chapter 11? In any case, if this story is true it’s good news and it’s about time. Millions and millions of Americans have spent WAY beyond their means in the past decade or so and that lies at the heart of the crisis. Many now want to blame faceless greedy people on Wall St. and in D.C., and there’s surely plenty of blame that they deserve, but at the end of the day the problem lies mostly in ourselves. Greed got out of control throughout the society, and now the chickens have come home to roost. Time to get back to the basics!
We are still getting them too. Along with credit limit increases.
Jeremy Bonner, is there an advantage to asking them to decrease your credit line? They continually up mine, though I have never come close to using my first limit, but I hadn’t thought that I should just tell them to stop it.
Sherri,
Even if you don’t use your card to the limit, that you have that limit is part of the formula used if you need to borrow money in the future. Think of it as a higher level of potential debt exposure. Another way to look at it, cancel the cards you don’t use.
Brian
Well thanks for that information, Brian. The Puritan in me nevertheless cringes at a $14,000 limit when $8,000 seems more than adequate and I like to be ASKED before changes are made.
We’re in the mode of trying to pay off student debt and a recently cleared credit card with a low limit feels right (especially when Citicard were making these increases while we still owed them more than a token amount – in other words, they were encouraging further bad habits among the undisciplined).
Brian, thanks for point that out. I had thought of it as a resource for dire emergency should the need arise, but have not been comfortable with it.
It’s good to have one around for those emergencies. It’s the folks who have a wallet full of them that I worry about!
On that note, has anyone else had card companies cancel unused cards on them? That happened to us this past summer. I think it was Citibank. Since we haven’t used it in years, low limit rate and all, they just up and canceled it. I interpret that to mean they’re trying to reduce their potential debt exposure.
Anyway, I have no sympathy for predatory credit card companies. Jackals all … I hope there’s a special place in hell for them …
Brian
“I had thought of it as a resource for dire emergency should the need arise” —Sherri2 [#8]
Unpleasant fact: all credit card issuers reserve the right to cancel your line of credit at any time.
This means you can’t count on using credit cards to get through the sort of sustained financial crisis that would tank your credit rating.
Well, that doesn’t surprise me, Irenaeus. But there’s no need to bother with telling them to quit upping it either?
“There’s no need to bother with telling them to quit upping it either?”
They up your limit as an inexpensive way of expressing appreciation for your business. In ECUSA-speak, it “affirms” you.
Up your limit but never offer to lower your rate, even in boom times.
Tells you something.
LOL, Irenaeus (12). Being “affirmed” is so helpful.
Depending on what your credit card limit is, and what percent of that limit your current balance is, it might be a prudent move to [i]increase[/i] your credit card limit. If your balance is between 35%-50% of your available credit [your limit], you may be hurting your FICO score. By simply calling and increasing your credit limit, while keeping your balance the same or lowering it, you may be able to improve your FICO score. As most everyone now knows, a higher FICO score improves your chances of getting a loan, improves the rate of your loan/credit card, may reduce your insurance costs, may impact your chances of getting hired, etc.
The point is, it isn’t always a bad thing to have a larger credit limit. At the same time, as others have noted, it isn’t a good idea to have too much credit available either. I think that if you are going to use credit cards, and you are going to carry a balance for more than a month, the best thing is to determine what amount you are comfortable borrowing and repaying and make sure that it is no more than 30% of your available credit, your credit limit. Then, with discipline of steel, never exceed that self-imposed limit.
“A revolving utilization of 50 percent is considered high by most lenders, as well as by Fair Isaac, creators of the FICO credit score. Additionally, many credit score experts warn that any number above a 35 percent credit utilization lowers your score by anything from a few points to by more than 100.”
http://www.creditcards.com/credit-card-news/boost-credit-score-raise-credit-card-limits-1267.php
Another point…
If you just paid off your credit card balance and are planning on cancelling the account, you should wait about 6 months before cancelling or you are likely to reduce your FICO score. I learned this one the hard way.
#15 is correct. Higher limits aren’t necessarily bad if you keep your charges low. If you have $4000 charged on all cards, and a $5000 limit across cards, you are using 80% of your available credit, which hurts your credit score. If your companies raised your available credit to $12,000 you are now only using 33.3% of your available credit, which looks much better on your FICO score. Of course, you can’t use a credit limit increase as a means to spend more money you don’t have.
On another note, I wonder how much energy is saved by not sending so many mailers through the mail?
so #16, I should keep my limit where it is? It’s at $32,000 right now even though I’ve never exceeded $10,000. Other posts indicate I should request it be lowered….
One argument against a high credit limit is that if your card number is stolen, and if you can’t successfully contest the charges, you can end up being on the hook for more money if you have a higher limit.
I don’t know what percentage of people who get their cards stolen have difficulty fighting the charges. I know it’s not zero, because I’ve heard anecdotal stories; but I’ve also heard stories of people who had no difficulty at all.
But in some sense your credit limit represents your maximum risk for having a credit card, so it makes sense not to let that risk get too far out of bounds.
#10. Precisely. I have no credit card, because I do not wish my information stolen. (I do accept the fact that my FICO score will be lower because I have no card). I have managed to stop folks from sending me credit cards (also to not send my 18 year old kid credit card offers) by putting freezes on our social security numbers at the three major credit bureaus. (It costs 10 dollars, and I think it well worth it). It is only a matter of time before some clever hacker figures a way into the credit card system. I don’t have a debit card for the same reason. I go to the bank once a week, and withdraw the cash I need. If I decide to buy land, I anticipate paying for it outright or sitting down with my banker and working out an appropriate loan using my other assets as collateral.
Since a person’s credit line can be cancelled (and a card can hike your rate without warning) or even demand full payoff for no reason, I see no point in having a credit card that is unlikely to be useful to me “if I really needed it”. Until then, it is a liabilty not an asset, and it is merely an expensive and risky conveniance.
I find that I spend a lot less, now that I don’t own a credit card.
Clueless,
Do you never fly anywhere? I applaud your approach, but there are some things where cash (or even a check) don’t seem to fit the bill quite as well.