It's Official...Your Credit Lines Are In Jeopardy

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=slogin 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 happend 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!

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!)

The same friend was telling me that American Express just lowered his credit limit from $25,000 to $8,500! He's had it for 7 years, never been late, always paid it off in full. He called and tried to get it reinstated and they refused.

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...

I found it interesting that one of the banks that are doing this is Washington Mutual, already known to be pulling HELOC’s.

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.

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.