American Express Cutting Credit Limits
A lot has been written recently about credit card companies cutting credit limits. American Express is one of the companies that has popped up in these discussions, and an article in today’s Wall Street Journal adds an interesting twist to this development.
Over the past few months, the Wall Street Journal, as well as other major media outlets, have covered the cutting of credit limits. Early speculation, which has been confirmed recently, points to specific targeting of certain consumers in geographic locations that have been hit hard by the housing crisis such as residents of Florida, California, and Nevada.
The article in today’s Journal goes a bit further. It suggests that American Express is using proprietary risk management tools to isolate consumers who share general similarities with consumers who have proven a default risk. What are these similarities that could put you at risk? One is having a mortgage loan from Countrywide Bank. Another is shopping at Wal-Mart. Yes, Wal-Mart. Apparently, American Express views Wal-Mart shoppers as a risk.
A spokesman for American Express confirms this shopper profiling to the Wall Street Journal, “If they’re spending in a way that looks like a pattern of other people who had credit trouble before them, it gets added into the mix.”
The Bell family, who are the credit crunch victims in the article, had their unlimited charge card credit limit cut to $1,100 were obviously upset. The couple had done nothing to draw the attention of American Express; they had not been delinquent on their credit card or late on their mortgage. They had simply fallen into a category of consumer that, according to computer models, made them a risk.
So what is one to do? Avoid retailers like Wal-Mart that can provide a little extra savings during tough times? Spend money on fees and refinance their mortgage, even though mortgage rates might be higher? Neither option is ideal, let alone reasonable. The best option for the Bell’s, and anyone faced with a lowered credit limit, is to fight back. Cut up your old card and get a new 0% credit card. There’s no reason to be loyal to a credit card company that clearly doesn’t trust you. And there’s no reason to continue using a credit card that imposes unreasonably low limits on you just because you fit the wrong profile.
November 19th, 2008 at 4:20 pm
I have tried to contact American Express several times and can’t get through on the phone - 45 minutes or longer 3 different times during three different times during the day. I went from a 25,000 limit to 1200. There was no reason other than possibly the reason mentioned in the above article. I use my card for business purposes and now have to make payments weekly to keep it under limit. The other problem i have with this is it’s effecting my credit score negatively which affects my ability to have other accounts and limits. There is a 30% hit to my score if I am over 1/2 of my existing credit limit on that card. I have no choice but to change all my direct billing and cancel the card because I can’t seem to get through to anyone.
BS!
November 19th, 2008 at 4:50 pm
I sympathize with your problem. Many cardholders are having the same issue, and the effect having a lower credit limit has on credit scores adds insult to injury. I would suggest, however, that you keep your credit card open. Even if you choose not to use it, closing the card will hurt your score even more than leaving it open with the lowered limit.
Another option you could consider is to pre-pay your credit card, effectively using it as a debit card. This can be especially useful right before your statement date, as this will insure your credit report does not show you using a substantial portion of your available limit.
Finally, you may find another bank willing to offer you a better deal and higher credit limit. Take a look at offers from Capital One, Citibank, or Discover. You can compare these offers in the business credit card section of our website (see http://smartcreditchoices.com/showcategories.php?showcat=business for more detaills).
We hope this helps you out. Let us know if it does.