[Infowarrior] - OT: AMEX, Chase Cut Card Limits, Lowering Credit Scores

[Richard Forno]

Talk about a catch-22 with the consumer (many of whom are responsible)  
in the middle.   --rf


American Express, Chase Cut Card Limits, Lowering Credit Scores

http://www.bloomberg.com/apps/news?pid=20601087&sid=adCwmmkzFI3U&refer=home

By Alexis Leondis

March 3 (Bloomberg) -- Wayne Brown has a dilemma. If he reduces his  
credit-card balance, American Express Co. will cut his credit limit to  
the amount of the new balance, he said. If he doesn’t make a big  
payment, his interest rate may skyrocket.

The credit limits on Brown’s cards have been lowered, which has raised  
his debt relative to his available credit. This so- called utilization  
rate is a key factor in determining credit scores. Brown, a 58-year- 
old construction company owner in San Diego, has seen his credit score  
drop to 650 from 760 over the past 13 months.

“Interest rates on all of my cards are going up now and my minimum  
payments are almost doubling because it looks like I’ve maxed out my  
cards,” said Brown, who uses credit cards to fund his home-building  
company. “It’s a Catch-22.”

About 45 percent of U.S. banks reduced credit limits for new or  
existing credit-card customers in the fourth quarter of 2008,  
according to a Federal Reserve January survey of senior loan officers.  
Financial institutions may slash $2 trillion in credit- card lines in  
the next 18 months, Meredith Whitney, a former Oppenheimer & Co.  
analyst, wrote in a Nov. 30 report.

“You’re no longer immune if you have good credit,” said Curtis Arnold,  
the founder of CardRatings.com, a Web site that reviews credit cards.  
“The issuers hold the cards, literally.”

Credit-card issuers such as New York-based American Express, Citigroup  
Inc. and JPMorgan Chase & Co. have cut credit limits to guard against  
risk and prevent delinquency and charge- off rates from increasing,  
said Arnold, who is based in Little Rock, Arkansas. Charge-offs are  
loans the banks don’t expect to be repaid and were 7.1 percent on  
average in January compared with 4.6 percent a year earlier, according  
to data compiled by Bloomberg.

Pay Off Balances

If credit-card limits are decreased, consumers should pay off balances  
as quickly as possible, consider making online payments before the  
monthly statement arrives to reduce debt and weigh transferring  
balances to a card with a lower rate, said Jeff Blyskal, a senior  
editor of Consumer Reports. Blyskal, who is based in San Francisco,  
said consumers should beware of teaser rates and high fees when  
transferring balances.

“Don’t cancel the card to spite the card company because you’ll just  
hurt your own credit,” said Emily Peters, San Francisco-based personal  
finance expert at consumer Web Site credit.com.

Cardholders will damage their credit history if they cancel an older  
account and lose the available credit on that card, she said. Credit- 
score companies look at the total amount of debt relative to credit  
limits on all credit cards when evaluating scores.

$300 Offer

American Express, the largest U.S. credit-card company by purchases,  
is offering $300 to some customers if they pay their balances in full  
by April 30 to reduce the risk of defaults.

Chase increased the minimum payment to 5 percent from 2 percent for  
certain borrowers with large balances, Capital One Financial Corp.  
increased the rates for new customers on fifteen cards and Citigroup  
and Bank of America Corp. began charging a 3 percent fee for all  
transactions made outside the U.S. in U.S. dollars, according to Bill  
Hardekopf, chief executive officer of LowCards.com, a Web site that  
compares the rates of almost 1,100 credit cards.

Consumers are falling behind on credit-card payments as U.S.  
unemployment reached 7.6 percent in January, the highest rate since  
1992.

Charge-Off Rates

American Express’s charge-off rates of loans rose to 8.29 percent in  
January from 7.23 percent a month earlier, a 15 percent increase,  
based on Bloomberg data. Chase’s charge-off rates increased to 5.94  
percent from 5.32 percent, a 12 percent jump.

Desiree Fish, a spokeswoman for American Express, said consumers’  
overall debt levels relative to their financial resources is the  
primary factor for any credit-limit reduction. She declined to comment  
on the specifics of Brown’s case.

Citigroup is lowering credit limits because of the market environment  
and deterioration of consumer credit, said Samuel Wang, a spokesman  
for Citigroup.

Gordon Smith, JPMorgan’s chief executive officer of card services,  
said at an investor-day presentation on Feb. 26 Chase decreased credit  
lines or closed accounts in 2008 totaling $129 billion. Credit lines  
to new and existing customers were increased by $107 billion in 2008,  
Smith said.

Cardholders most likely to see credit limits slashed have large  
balances, delinquent payments or recent dips in credit scores, said  
Arnold of CardRatings.com. Consumers who don’t use their cards very  
often may also see limits cut because they aren’t profitable for  
issuers, said Peters of credit.com.

No Advance Notice

Critz George, a retired nuclear engineer and physicist in Albuquerque,  
New Mexico, said he had three Chase cards and one Citibank card closed  
because of inactivity, without advance notice. George, 71, said he  
fears having four lines of credit closed will lower his credit score.  
“I feel like it was an arbitrary and capricious decision because I  
have paid in full and on-time for the last 20 years,” he said.

Brown, who is a mortgage broker is addition to his construction  
business, said he was always careful to keep his balance at one-third  
of the limit. He said the reduced credit limits on his American  
Express and Bank of America cards have made that impossible.

“I’m angry because I’ve always been proud of my credit history and now  
it’s gone to hell, not because of something I’ve done.”

To contact the reporter on this story: Alexis Leondis in New York aleondis at bloomberg.net 
.