Friday, July 10, 2009

Your interest rates will increase and your credit limits will decline if you are not shopping like you used to shop with them....

Millions of Americans are being sandbagged yet again by consequences arising from the banking crisis.

For the last six months or so, lenders have been wrecking havoc on many of their customers by reducing credit limits, increasing prevailing interest rates, or both.

These unilateral moves have been made by credit card companies, which are virtually unregulated, and by lenders who have extended other revolving credit such as home equity lines (HELOCs.)

To a certain extent this is not new. Credit card companies have long had a policy of increasing interest rates on customers who are late with several payments or who go over their credit limits and some have even gone so far as to increase interest rates on customers who miss payments on unrelated debt.

But now the parameters on good behavior are getting tighter and consumers report that their interest rates have increased, sometimes by more than 100 percent, when they have been even one day late with a scheduled payment.

The downsizing of credit limits or lines has been even more capricious as lenders have scrambled to reduce exposure to possible defaults as the economy declines and unemployment increases. Even the best customers have been hit and most are given very little advance notice of these changes. Some, in fact, claim there was no notice, just embarrassment when a store clerk told them their purchase had been declined.

The effect of these actions on consumers is threefold and one may come as a bit of a shock when one applies for other credit such as a car loan or a mortgage.

As credit card companies continue to tighten their lending standards on card users, some are using purchasing data -- gleaned from millions of card transactions processed daily -- to weed out who may or may not be good credit risks.

Have you suddenly starting to use your credit card at liquor stores, lower cost stores like Walmart and with merchants specializing in secondhand clothing, retread tires, bail bond services, massages, casino gambling or betting?

Your credit card issuer may be taking note -- and making decisions about your creditworthiness based on your purchasing behavior.

The reason: Buying used clothing or retread tires may be an indication of financial distress and a preamble to missed credit card payments or defaults.

1 comment:

Claudia Wilson said...

Good post, Fred. Today I blogged about 7-Eleven whining about credit-card fees THEY pay.
They have petitions in the stores for people to sign. Really. Petitions.