More On Credit Lines Being Reduced and The Ramifications

I've been on a Forum talking about this subject and got some interesting thoughts and comments.

A while ago I saw an article on this issue 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..

So this situation is going to have far-reaching effects - and on people with good credit, not just people in over their heads. When everyone's FICO scores start dropping are they going to revise the scoring range????

And it may have an effect on businesses as well. If people's credit is shrinking they may not be able to buy the stuff they would have if they could have put it on their credit card and paid it off over a few months.

That also brings up questions as to what impact this will have on businesses? Someone brought up the question of what will happen to the Automatic Recurring Payments a lot of us have set up to pay for various monthly charges. I know I put a lot on my credit cards because I get mileage points. Plus if it's an internet vendor I think most people are more comfortable giving them a credit card to bill to than their banking information. And most aren't even set-up to do an Electronic Funds Transfer (EFT) from a checking account anyway.

What else can you think of that will be affected?

Credit is getting tighter, not just with mortgages

I received a letter yesterday from a Platinum credit card that I was a Charter Member of and have had for 17 years. Never been late with a payment, my FICO score is great and hasn't changed (I have it watched monthly) yet they are reducing my credit line by $1,240.00! Are they kidding? Then I did the math and realized that is approximately the amount of credit I have remaining on the line. So I'm sure it would have been even more had I not had most of my credit line used.

This is similar to what many banks have been doing with Home Equity Lines of Credit (HELOC). They are freezing them at what you already have out on them, or "rescinding" the entire line of credit if it is open without a balance.

This economy and credit crunch just keep getting worse. Do you have any stories?