Credit cards, credit crunch: consumers feel pinch as issuers `go on the defense'

Consumers are not just having a tougher time obtaining auto loans and mortgages. The credit crunch and weak economy also are taking a toll on credit cards.

Perhaps you have noticed that you're receiving fewer offers for credit cards in the mail. If you have iffy credit, you might find it difficult to qualify for a card now. Or you may be able to obtain one only at a high interest rate.

Even if you're not shopping for a new card, you might not be immune from the changes. Your card company might reduce your credit limit or cancel a card you don't use.

"When the economy is contracting, when unemployment and default rates are on the rise, card issuers--as well as other lenders--go on the defense," said Greg McBride, senior financial analyst with Bankrate.com
"Cardholders are on a shorter leash."

Credit card companies have been tightening their standards for more than a year as the economy soured and the chance rose that customers wouldn't be able to keep up with payments. Issuers are unlikely to loosen up until the economy significantly improves.

That might be some time. If you are having trouble getting a card, or one with favorable terms, you should start taking the financial steps that over time will make you appear less of a risk to card companies.

Customers with stellar credit, of course, will still receive a bump up in credit lines and favorable interest rates--even in this environment. But which customers are considered desirable has been evolving during the past year and a half.

It used to be if you had a FICO credit score of at least 700, among other factors, you had no trouble obtaining a card, said John Ulzheimer, president of consumer education for Credit.com. Now, you need a score of 720 or higher, which more than half of American consumers do, he said.

"We have seen some situations where 780 is the target score," Ulzheimer says. Only 17 percent of U.S. consumers score that high or greater, he said.

Credit card issuers say they have always monitored accounts but acknowledge they've stepped up their efforts.

At Bank of America, more card applications are undergoing an extra review by credit specialists, said spokeswoman Betty Riess. The bank also is taking a more aggressive look at existing accounts and will lower a credit limit if a customer has become a higher risk, she said.

Card experts say other issuers also have closed unused accounts that cost them money to keep open.

Reductions in credit limits can be sharp, said Curtis Arnold, founder of CardRatings.com. Some card issuers have cut credit limits near the level of the customer's balance, putting the customer at risk of going over their limit and getting hit with a fee as high as $39, he said.

Arnold says he also has noticed that card issuers in the past few months have become more tightfisted in other ways.

source : http://www.newsday.com