Credit Card Companies Analyzing You, Again

The credit crunch is causing some knee-jerk reactions by credit card companies.  Shaken by the fallout from the subprime mortgage crisis, they're reevaluating consumer credit.  Then, they're shrinking card limits and charging higher interest rates.

Americans are fond of chastising banks for their recent catastrophic subprime lending practices, and justifiably so.  Now, you'll have to brace yourselves for the financial backlash.  

Scared out of their minds by nationwide foreclosure rates, credit card companies have begun to scrutinize their portfolios, sniffing out potentially risky borrowers. They're lowering credit card limits and raising fees for any actions that give the impression that you might be a potential risk.

Draconian actions

Credit card companies are rewriting the ways that they handle credit, and it's not good news for consumers:

• Rate spikes: Because of a growing number of charge-offs that have resulted from delinquent payments, card issuers are raising rates.  Don't be surprised if your statement includes a rate hike of two to three percentage points.  It's all the more reason why you shouldn't carry a balance.

• Credit card limits: If you're carrying a large balance, credit card companies will make sure it doesn't get any larger.  Many are shrinking your credit limits, even if you regularly make your payments on time.

• Denying consumer credit: Some consumers are flat-out being denied credit, or having their accounts closed if they haven't made a transaction for an extended period of time.  Companies are nervous about any situations that are out of the ordinary, and they're acting accordingly.

Anticipating the worst

These actions are the result of the credit crunch that's gripped the market.   Many financial experts also believe that companies are moving quickly in anticipation of upcoming federal regulations on consumer credit.

The Federal Reserve is considering regulations that include prohibiting companies from raising the rate on existing balances.  They may also prohibit any changes to your account based on unrelated financial transactions.  Under such a provision, if you make a late payment on a utility bill, for example, your credit card company would not be able to raise your interest rate or charge you additional fees.

Avoiding problems

The best way to steer clear of any problems with your credit card company is to make your payments on time.  You should also pay down as much of your balance as possible.  Your credit score reflects the amount of debt you carry, particularly the ratio of your debt to your credit limit.  

You can also shop around for different plastic if you're unhappy with some of your new terms and conditions.  This option is probably only reserved for people with good or exceptional credit.  

Credit card companies are feeling the pinch of a struggling economy.  Like most businesses, they're passing the cost onto the consumer.  Unless you have sterling credit, you're going to have to adapt to the new market.  Lenders need to show some fiscal responsibility; now, consumers will, too.