Watch Your Credit Card Statements!

It is more important than ever to pay attention to your credit card statments and any correspondence from your credit card companies. Because of new laws affecting credit cards (look for my previous blog post) the banks are getting very aggressive with consumer and business credit card accounts.

Consider this article -

One-Third of Credit Card Holders' Limits Cut

"Credit card companies reduced limits for 58 million cardholders w/ little regard to their credit scores" http://bit.ly/JB2y9


And from American Banker yesterday (a subscription publication):

"Credit card lines nationwide are set to be cut by another $1.5 trillion before the economy bottoms, on top of a $1.2 trillion cut from the peak, the analyst Meredith Whitney predicted Monday.

Unless credit loosens up dramatically for Main Street, small businesses will stymie a recovery, she wrote in a report to clients.

Credit cards are a particular source of concern, as roughly four out of five use them as vital portion of their overall funding, Whitney wrote."

So watch your personal and business credit card statements and correspondence and don't be blind-sided by increasing interest rates, reduction of credit lines or cancellation of accounts and the worst, in my opinion, the increase of the minimum payment percentage.

FICO Scores are Starting to Drop - But Why NOW?

Back on August 10, 2008 I wrote a blog post about the tightening credit and its ramifications and I ended the title of it with "...and Watch Your FICO Scores DROP!"

And it's begun to happen - I just don't understand why it didn't start sooner. When some of your available credit is taken away your ratio of outstanding debt to your available credit changes, for the worse. Whereas you may have had a credit card with a $10,000 credit line and only $2,500 owed on it you had a 25% debt ratio. If they reduced your credit line to $2,500 you would now have 100% debt ratio - not good for your FICO score.

I have monthly monitoring of my credit reports and score and have been surprised to not see any change at all to my FICO score even though as with many others I have had credit card companies reduce some of my credit lines.

But today I checked my daughter's report and saw her score dropped 28 points and yet not one thing has changed in her file since last month and surprise of surprise, last month it dropped 28 points as well! Absolutely nothing in her file had changed over those two months but her score has dropped almost 60 points. She has "excellent" in all the categories except for "length of credit history" because she's only got a few years of history.

I hadn't gotten my monthly notice on my account so I popped over there and lo and behold my FICO score is now beginning to drop as well.

What does this mean? Well, I'm not sure...it should have happened months ago when credit began being shut off, but it didn't.

But now suddenly the scores are adjusting downward. Odd isn't it? The government is pushing for the financial institutions that they gave bailout money to to actually use it to give credit to consumers again, but suddenly all of us don't look as good on paper any more - in some cases for no apparent reason. Are these institutions now going to point to our lower FICO scores and use it as an excuse not to lend?

Just what is going on? Seems like your guess is as good as mine, but it doesn't look good any way you look at it.

CNN Now Reporting What I Told You a While Ago - AMEX Is Cutting Credit Lines

Finally the word is getting out to the public about this. CNN reported that AMEX is cutting credit lines. And although it was just AMEX they mentioned I know Chase credit card limits are being reduced as well as the AT&T Universal Card.

The issue here is not just the sudden disappearance of your credit, which is unnerving enough, but as they cut credit lines to just what people owe on the cards it becomes an issue for FICO scores. FICO scores are heavily weighted to the percentage of credit you have outstanding to your total available credit. With the reductions you could easily go from 30% to 100% usage which is going to lower your FICO score. A friend's AMEX was reduced from $25,000 down to the $8,000 which he currently owed. Several of my cards have been lowered to just what I owe creating 100% credit usage.

And the question in my mind is how often they will keep reducing it. If you make a large payment will they reduce your credit line even more next month? In my mind it's a Catch-22 situation. The more they reduce credit lines the lower everyone's FICO scores will go, which will make them reduce your credit even more.

So if you are one of the few people who are actually buying a home right now if you were pre-approved then your credit lines were dropped you may see your FICO score lowered and the mortgage loan approval evaporate. So this isn't just about credit cards, it's another big hit to the housing market.