Credit Cards: Going, Going, Gone
For many months, credit card companies have been making it more difficult for consumers to gain access to credit. At the same time, they have been reducing credit card limits substantially. In fact, in a recent Federal Reserve consumer credit survey, it was reported that 60% of credit card companies cut credit limits on less than prime borrowers.
Many had been hoping the “bailout plan” would help ease the credit crunch and encourage banks to lend to consumers. Unfortunately, however, that seems like a fantasy. Early this week, a J.P. Morgan Chase official was quoted as saying, “loan volume will keep going down as we continue to tighten credit.” This is not good news, as Chase is one of the nations largest credit card issuers.
As banks tighten the reigns on credit, consumers may ultimately find themselves in what is known as a “negative feedback loop.” In essence, this is a scenario in which, for example, having a lower credit limit negatively impacts your credit score, which in turn makes it more difficult to get new credit, which in turn leads to higher interest rates on everything from credit cards to mortgages.
These types of scenarios could ultimately make this credit crunch a credit crisis for many consumers. The banks, of course, will profit. When a person whose credit score has been decreased because of a credit limit cut applies for a mortgage, the same bank that cut that person’s credit limit can charge them more for a mortgage. After all, that person does have a lower credit score.
The losses incurred by banks because of their reckless lending are being paid for with American tax money. That’s enough to irk those of use who have been responsible with our finances. But now, it appears the banks are once again operating out of fear and greed, and responsible consumers will continue to foot the bill for the mistakes of the banks.
When it comes to credit cards, and in particular to credit limits, there are very few remedies consumers can take to prevent banks from assaulting their credit scores. However, one thing worth considering is applying for a new credit card to increase your available credit limit or to transfer your high interest balance to a 0% credit card. A move such as this might not only save you money on in the short term, but help keep your credit score high, and thus lower the cost of borrowing for other financial products. For more information on 0% credit cards and balance transfer credit cards, please use the left navigation to review and apply for credit cards online.
