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.
Showing posts with label bailout. Show all posts
Showing posts with label bailout. Show all posts
2/15/2009
Tightening Credit - Where Were the Economists?
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Hi Mary,
Wow! You were one of the first to call out the rate increases in credit cards back in November? of 2008. Today, FrugalDad.com just posted how his rate was increased from 6% to 28%. He has good FICO and no late payments. The CC companies are just raising rates across the board.12/2/09 6:34 AM
Posted on: Sun, 05/04/2008 - 13:02 Mary said:
An update…our friends got back from their vacation only to hear that an acquaintance who lives off of his HELOC found it closed on the very Monday after I got them to pull the money out of theirs. Not sure if it’s the same bank they use, but it’s very likely.
An update…our friends got back from their vacation only to hear that an acquaintance who lives off of his HELOC found it closed on the very Monday after I got them to pull the money out of theirs. Not sure if it’s the same bank they use, but it’s very likely.
Lesson here is that you get no notice, except that the line of credit is no longer available to you.
Posted on: Tue, 05/06/2008 - 08:05 Mary said:
WaMu is one of the banks that is beginning to close HELOC accounts. They are in financial trouble because of all the questionable loans they wrote in the real estate heyday and they just closed all of their “home loan only” branches. They’re not in a position to take any risks on something they could just as easily close-out and not worry about.
Posted on: Thu, 06/19/2008 - 10:45 Mary said:
The credit card companies are starting to lower your credit line. The more open credit you have the more they may lower it. A friend's Amex line was $25,000 for over 7 years and they just lowered it to $8,000 - which is about what he had outstanding on it at the time. I just had a card that I've had since 1991 with a $25,000 credit line lowered by $1,240.00 - can you imagine? Again, that's about the open credit I had on it at the time. Absolutely nothing had changed in my credit report, my FICO hadn't changed (I get e-mailed every time there's any change to it) and I've never missed a payment in 17 years.
The credit card companies are starting to lower your credit line. The more open credit you have the more they may lower it. A friend's Amex line was $25,000 for over 7 years and they just lowered it to $8,000 - which is about what he had outstanding on it at the time. I just had a card that I've had since 1991 with a $25,000 credit line lowered by $1,240.00 - can you imagine? Again, that's about the open credit I had on it at the time. Absolutely nothing had changed in my credit report, my FICO hadn't changed (I get e-mailed every time there's any change to it) and I've never missed a payment in 17 years.
With college tuition for two kids coming up I just cash-advanced a card with a sizeable open credit line on it because I can't risk it not being available. There are always unforseen expenses - 21-year old daughter just had a trip to the emergency room that required an ambulance ride and tests and probably will top out at about $5,000 (my HSA will save us on this one) - our dog collapsed totally unexpectedly last February while we were 3,000 miles away and between the treatment to keep her alive until we could get home and then the surgery to give her a few more months with us cost about $10,000.
So now I've taken all available monies on my HELOC to protect my access, and now max'd out credit cards to make sure I don't lose access to that money. Hell of a pickle this economy is putting us in!
Posted on: Sun, 06/29/2008 - 10:53 Mary said:
First HELOC's, now Credit Card Limits are getting reduced! Watch your FICO scores DROP!
Well, now that people are getting their HELOC's rescinded (heard a horror story from my friend of a woman who was in the middle of a full kitchen remodel; totally torn down to studs then found her HELOC was yanked!)
Just saw an article on it and here's a quote - the bigger (??) issue is what all of this does to your credit score, so take heed:
"Here's how that happens: Let's say a cardholder has a credit limit of $10,000 and a balance on the card of $4,000. The card company worries that large balance may increase the prospects for default, so it lowers the credit line to $5,000.
But in doing that, it completely changes what is known as the credit utilization rate, raising it from 40 percent to 80 percent. That is then factored into the calculation of one's so-called FICO credit score, which measures creditworthiness, according to Craig Watts, a spokesman for FICO-creator Fair Isaac Corp. "
Here's the link to the full article:
http://channels.isp.netscape.com/pf/story.jsp?flok=FF-APO-1310&idq=/ff/s...-
And later that day:
Posted on: Sun, 06/29/2008 - 11:26 Mary said:
Forgot to mention…I found it interesting that one of the banks that are doing this is Washington Mutual, already known to be pulling HELOC’s. Also Wells Fargo, which was a surprise to me.
This situation is troubling on a number of levels. It seems like a fast-moving downward spiral that is going to have far, far reaching effects. e.g., I’m OK with holding my own right now, even holding non-cash flowing properties. But take away any of my credit and I could be in a very bad situation.
Again, in the current economy we’re not doing great, but we’re holding our own. But change anything in the current mix and we could be in a tight situation.
Anyone interested in adding to the discussion of where all of this may lead, head over to the “Crystal Ball” Forum topic!
BTW, another friend got her $100,000 HELOC “rescinded” by National City Mortgage last week. She’s sick about it, mainly because she knew I had suggested taking it all out in putting it in an interest bearing account, just in case, but she didn’t act. She had another smaller one that she immediately took and put away. Well, it's beginning...I just got a letter from a Platinum credit card that I've had since 1991 (I'm listed as a "charter member" on the front of it!) - they reduced my credit line, get this, by $1,240.00! Probably would have been more, but that's all I had available on the credit line. This is a card I've never paid late.
I use a service to tell me anytime my FICO score changes, but nothing has, and we have a good score.
Just like with HELOC's - if you NEED the credit line you may want to cash advance your credit card and tuck the money in an interest bearing account...that's what I'll be doing with another card I have with available credit on it. College tuition will be due in another month and they don't take credit cards anyway, so I'll just take it all now so I've got a buffer. What's next????
That amount was just a little less than what I had available - I think they took what I hadn't used yet and allowed for next interest that would be assessed and knocked it down. But why bother to do that for such a small amount of additional credit? That's what is so unsettling - it appears to be an automated system. Computer program just churns out the numbers, reduces the line of credit and sends a letter. Bam! So if I had been unlucky enough (LOL) to have had $20,000 open credit I could have found my credit line reduced from $25,000 to $5,000. I would have been VERY unhappy.
And since no one is extending credit to anyone right now (so it seems, anyway) max'ing out all of my credit cards and HELOC is irrelevant to me if it dips my FICO score. Even with a really good one (FICO) people aren't getting mortgages, etc.
So even if I came into a big amount of money would I pay down anything? Probably not, because I'd be afraid my credit lines would start disappearing. Will that cost me money? Yes, but I'll retain peace of mind knowing I have the money available.
Posted on: Wed, 09/10/2008 - 21:30 Mary said:
In this economy you may want to consider a guaranteed return of principal investment. Rabo Bank is the largest (?) international bank and they have these types of CD's. Basically they give you a range of interest based on what they expect to make, but guarantee you'll always get your principal back. If you're willing to put some of your principal at risk they give you a higher rate of return in exchange you put 10% or 20% of your principal at risk.
In this economy you may want to consider a guaranteed return of principal investment. Rabo Bank is the largest (?) international bank and they have these types of CD's. Basically they give you a range of interest based on what they expect to make, but guarantee you'll always get your principal back. If you're willing to put some of your principal at risk they give you a higher rate of return in exchange you put 10% or 20% of your principal at risk.
I'm in a similar situation. I'd like to start paying some of my HELOC back, but I'm afraid if I do they will reduce the available LOC by what I pay back.
I've made all of my friends who may need their HELOC lines of credit take out the maximum and put it in an interest bearing account. At least until we see where the dust settles. If you may need the money you can't be sure you'll have access to it unless you take it now, is my opinion.
Posted on: Mon, 09/15/2008 - 18:19 Mary said:
I hate to say it, but for anyone who understands what's going on you need to be max'd out on your credit lines to preserve them if you need or want them. At least until all of this shakes out.
I've got to call Amex tonight. I have several thousand dollars in open credit on my card yet yesterday and tonight at the grocery store it was declined. I have a bad feeling about what I'm about to find out.
Posted on: Tue, 09/16/2008 - 10:33 Mary said:
So here's the update:
I went to the grocery store the other day and used my AMEX card as usual and it was declined. I download all of my credit card transactions into my Quicken account every day and I knew I had several thousand dollars of available credit on that card. Thinking it was a fluke I used a different card. Last night (yes I go to the grocery store pretty much every day!) it happened again.
Just now I called AMEX to see what the problem was and found that they had reduced my credit line down to what I had outstanding. Poof, thousands of credit line dollars, gone. Being my argumentative self I contested it with the young man who claimed it was because of a negative credit report from Experian. Well, I also subscribe to a service that alerts me to any changes in my credit reports and/or FICO score on a daily basis. And nothing has changed.
He transferred me another person in another department that again tried telling me it was because of my credit report. I have had this card since 2003, never been late with a payment, actually in over 30 years my credit report shows I have never been late with any payments. So of course I pointed that out and asked exactly what in my credit report were they referring to. He just kept repeating the same memorized line over again so I told him I wanted to speak to his supervisor.
A woman got on the phone and repeated the same information. But when I pressed her she said that it had nothing to do with my personal credit report that AMEX and other financial institutions were reducing credit lines based on the current negative economic environment and it had nothing to do with my personal credit. They would not budge.
My husband Googled AMEX and found this article from June in the NY Times:
http://www.nytimes.com/2008/06/21/business/21credit.html?_r=1&oref=slogi... which talks about AMEX and other credit cards reducing lines of credit across the board. And it doesn't matter what your credit score is or how much you make, if you carry high balances or own a lot of property and therefore have several mortgages on your credit report you're going to see your credit lines reduced. If it hasn't happened to you yet, be aware that it probably will.
Now you'd think that with the current economic conditions requiring banks to tighten their belts that they'd be encouraging credit worthy people to carry balances so they can collect interest. I mean, they've got to do everything they can in these tough economic conditions to tighten their belts and cut costs to keep AMEX financially sound, right? Especially since the chairman and chief executive of American Express, Kenneth I. Chenault, received compensation valued at $53.2 million in 2007, nearly double the $27.3 million he received in 2006. http://www.nytimes.com/2008/02/26/business/26amex.html
Oh? Wasn't it the mismanagement of these same financial institutions that created this current economic mess? But it must be tougher now to manage them, so the top management really need to take more money from their struggling companies in order to compensate them for the terrible job they did in the first place!
Posted on: Tue, 09/16/2008 - 10:51 Mary said:I'm updating my old post in the thread "First HELOC's, now Credit Card Limits are getting reduced! Watch your FICO scores DROP!" because I think the new wave of credit cards lowering credit limits is really going to start affecting people's FICO scores. After all, they are based on the total amount of credit you have relative to your debt. Your debt isn't changing at all when they drop your credit line, but since they are dropping it to whatever you have outstanding, plus a little to cover their next interest assessment, practically everyone will see a change in their credit scores, won't they? For example, now instead of having only 40% of your available credit outstanding you're going to go to almost 100%!
I'd really be interested in comments about this. I debated about adding it to the "Futurology, Trend Identification" thread because I see it having major impact on FICO scores and how credit worthiness is going to be assessed in the future. Remember, your credit lines are based on your FICO scores which do NOT take into consideration how much you make. So even if I made $10,000,0000 a year (I wish!!!!) if I have lots of real estate loans and carry lots of balances on my credit cards because my cash is invested elsewhere, I'm going to get hit by these credit line reductions.
Posted on: Wed, 09/17/2008 - 22:00 Mary said:
That's interesting, because how many more big corporations can they bail out? I would have thought that people would have gotten more concerned with the bail out. Of course the government can just start printing more money if it needs it.
11/11/2008
Let's Become a Bank So That We, Too, Can Participate in the Bailout!
Recently I talked here on my blog about credit limits being reduced, first with HELOC's, then credit cards. Well it appears that the media, a little late to the party, are now beginning to report on this.
Some media reports are now saying that there are a couple of criteria that some banks are using. For example, if you live in an area hit hard by real estate value drops, chances are your limits are going to be reduced. You could always have paid all your bills on time, have had the accounts for years and you can still find you credit lines reduced. It also appears that if you’re in a category where others are defaulting you will be affected, regardless of your personal history and payment record...so if the percentage of females age 20 - 29 defaulting on credit cards is going up, if you’re a female age 20 - 29 your credit card limits will be cut.
And think about this. If someone had a credit card with a $15K line with WaMu and also one with a $15K line with Chase the risk would have been distributed. Now that the banks are one and the same I would think the exposure of $30K would make Chase more aggressive about either closing one or at least reducing the credit lines wherever possible; after all, Chase would have qualified the card holder for a $15K line, not a $30K line.
In my personal experience some are just looking at the total credit line and comparing it to the outstanding balance and cutting the credit limit back to that. It's obviously what they did when they cut one of my credit card lines by only $1,240! American Express is really coming down hard with this; they reduced my credit line, and the lines of several people I know.
BTW, maybe American Express' strong-arm approach is because today they just got the OK to be a bank? Different guidelines to meet? http://www.bloomberg.com
From the news story: "New York-based American Express said last month that credit-card holders failed to repay loans in the third quarter at almost twice the rate of a year earlier." And it seems that by becoming a bank "American Express, the largest U.S. credit-card company by purchases, joins securities firms Goldman Sachs Group Inc. and Morgan Stanley in gaining "increased liquidity support'' as part of a $700 billion bailout of the banking system. American Express said its conversion won't require "significant divestitures.''
Some media reports are now saying that there are a couple of criteria that some banks are using. For example, if you live in an area hit hard by real estate value drops, chances are your limits are going to be reduced. You could always have paid all your bills on time, have had the accounts for years and you can still find you credit lines reduced. It also appears that if you’re in a category where others are defaulting you will be affected, regardless of your personal history and payment record...so if the percentage of females age 20 - 29 defaulting on credit cards is going up, if you’re a female age 20 - 29 your credit card limits will be cut.
And think about this. If someone had a credit card with a $15K line with WaMu and also one with a $15K line with Chase the risk would have been distributed. Now that the banks are one and the same I would think the exposure of $30K would make Chase more aggressive about either closing one or at least reducing the credit lines wherever possible; after all, Chase would have qualified the card holder for a $15K line, not a $30K line.
In my personal experience some are just looking at the total credit line and comparing it to the outstanding balance and cutting the credit limit back to that. It's obviously what they did when they cut one of my credit card lines by only $1,240! American Express is really coming down hard with this; they reduced my credit line, and the lines of several people I know.
BTW, maybe American Express' strong-arm approach is because today they just got the OK to be a bank? Different guidelines to meet? http://www.bloomberg.com
From the news story: "New York-based American Express said last month that credit-card holders failed to repay loans in the third quarter at almost twice the rate of a year earlier." And it seems that by becoming a bank "American Express, the largest U.S. credit-card company by purchases, joins securities firms Goldman Sachs Group Inc. and Morgan Stanley in gaining "increased liquidity support'' as part of a $700 billion bailout of the banking system. American Express said its conversion won't require "significant divestitures.''
So...now we just have to figure out how to become a bank so WE can participate in the $700 billion bailout!
11/02/2008
More on Banks in the Bailout Paying Big Bonuses
I wrote a few days ago about this being on CNN and wondered why it wasn't getting more play (see October 25, 2008 post)...well finally someone in the UK is writing about it.
Here is a snippet...read the full article at: http://www.guardian.co.uk/business/2008/nov/01/royal-bank-scotland-vincent-cable
"Several US politicians have seized on an investigation by the Guardian last month which showed six Wall Street banks - Goldman Sachs, Citigroup, Morgan Stanley, JP Morgan, Merrill Lynch and Lehman Brothers - had set aside $70bn ... in pay and bonuses for the first nine months of the year. (emphasis is mine)
Here is a snippet...read the full article at: http://www.guardian.co.uk/business/2008/nov/01/royal-bank-scotland-vincent-cable
"Several US politicians have seized on an investigation by the Guardian last month which showed six Wall Street banks - Goldman Sachs, Citigroup, Morgan Stanley, JP Morgan, Merrill Lynch and Lehman Brothers - had set aside $70bn ... in pay and bonuses for the first nine months of the year. (emphasis is mine)
Five are in line to benefit from a $700bn US taxpayer bail-out. The sixth, Lehman Brothers, has collapsed - though not without securing considerable bonus payouts for staff in the US.
Henry Waxman, chairman of the House oversight committee, wrote to chief executives of America's nine largest banks this week asking them to hand over information about their pay and bonus plans.
In his letter Waxman cites the Guardian report and says: "Some experts have suggested that a significant percentage of [bankers' pay] could come in year-end bonuses and that the size of the bonuses will be significantly enhanced as a result of the infusion of taxpayer funds."
Staff costs at RBS's investment banking division include salaries already paid in the first six months of the year, national insurance and profit-sharing contributions as well as funds earmarked for end-of-year bonuses. The sum set aside is 20% lower than the equivalent figure for the first six months of 2007.
Banking sources privately acknowledge that the sight of these bonus accruals may provoke anger. They concede the industry's pay and bonus regime is under unprecedented strain as it fails to reflect profitability, asset writedowns or share price declines." (Emphasis is mine!)
UH, YEAH! $70 BILLION in pay and bonuses to the people that caused this financial melt-down?9/26/2008
What's Wrong With This? WaMu New CEO Gets $20 Million for 17 Days Work
I can't find words to comment on this I am so blown away. Read for yourself:
WaMu Gives New CEO Mega Payout as Bank Fails
Friday, September 26, 2008
Nice work — if you can get fired from it.
That's just what one Alan H. Fishman might have thought when he woke up Friday morning.
Fishman was the new chief executive officer for Washingon Mutual — WaMu — the nation's largest savings and loan, which was taken over Thursday night by federal bank regulators and quickly dumped in a fire sale to JPMorgan Chase for the Wal-Mart-like price of $1.9 billion.
But don't cry for Fishman, who reportedly was sky-high — literally — last night, on a flight from New York to Seattle, when WaMu collapsed. Even though he's only been on the job for less than three weeks, he's bailing out with parachute worth close to $20 million, according to an executive compensation analysis conducted for the New York Times by James F. Reda Associates.
That's right, $20 million for 17 days on the job ... and his company failed.
Fishman, who formerly was chairman of Meridian Capital Group, apparently was much coveted by WaMu, which was counting on him to lead the failing thrift out of mortgage troubles that pushed the bank to a $3.3 billion second-quarter loss.
According to filings with the Securities and Exchange Commission, WaMu threw a $7.5 million bonus at Fishman when it hired him on Sept. 8, and guaranteed him an immediate cash severence of $11.6 million — both of which he gets to keep.
He also was eligible for annual bonuses of up to 365 percent of his annual base pay — set at $1 million — to go with millions of shares of company stock.
Fishman does lose out on a big bonus that would have kicked in had he remained on the job through 2009.
Documents show WaMu was going to pay their new boss $8 million to simply not screw up and get fired — all negotiated as the Seattle-based banking giant's loses climbed to an estimated $20 billion.
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