FICO Confirms: Reduced Credit Lines For Good Borrowers
A study from Fair Isaac confirms that even the best borrowers are seeing their credit lines slashed as banks move to boost profitability during the recession. 16% of Americans have seen their credit lines reduced by an average of $2,200, and of them, 11% had no late payments or negative marks on their credit report.
That may come as a surprise to those consumers because they pay off their balances every month and are careful with their credit, says John Ulzheimer of Credit.com. But at the same time, those customers are also generally less profitable for lenders, he says.
Typically, credit scores tend to remain relatively stable over time, in part because there are a number of factors that go into calculating one's score. In fact, the banks' tightening may have spurred some consumers to pay down balances more quickly. Among Fair Isaac's findings: About 6% of consumers saw their scores jump by 40 points or more (about 4% saw their scores drop by 40 points or more).
So there you have it, straight from the source. It's not your fault, and you did nothing wrong. You were just too unprofitable for the banks, just the way you should be.
Credit Cuts Befall Even Top Scorers [The Wall Street Journal]
(Photo: yksin)
Post a comment
Comments:
Damned if you do, damned if you don't. You just cannot win.
Maybe I'm just stupid, but I am caring less and less about my "credit report". I used to have "perfect" credit and now I don't. I'm tired of jumping through hoops and playing by these increasingly irrational rules. If you check your credit "too often", it lowers your score. WTF? What does THAT have to do with anything? Ridiculous.
There needs to be a reward for good behavior and a punishment for bad behavior.
I've had my credit lines increased on a couple cards. Does that make me bad?
Well I have the opposite problem. Capital One keeps increasing my credit line and I haven't even asked for an increase. HSBC also raised my limit without me asking and I still have a kick ass 9.9% APR with them.
You checking your own credit does not lower your score. Other people checking your credit does, because it shows that you are applying for credit and may soon have more liabilities.
Does that mean that a graduating senior with little credit history would be better off opening a credit account at this time or worse of? Do I seem more profitable (more of a sucker)? I think I need a credit card but I'm scared to apply.
The headline seems a little overdramatic given the the stats cited in the article. I suck at math, but if 16% of Americans have had their credit lines cut, and 11% of that 16% had no negatives on their credit reports, doesn't that mean the number of people who have good credit but still had their credit reports cut is ~1.6% of the population - which isn't exactly a huge group.
@aguacarbonica: The question is do you really need a credit card? I did not get my first CC until I was 26 as I had no need for one. I had established my credit rating though via a car loan many years prior. There are a lot of others ways to establish good credit other than go down the credit card road but being I'm a computer expert I won't try to give you advice on the best way to establish good credit.
I suspect they're not hitting everyone yet.
With 32K of income, $130k owed on my home (no idea of it's worth), no other debt and 800+ credit rating and $17K of credit card availability, I was able to get a new $9k card in the space of 2 minutes on this past Friday.
Maybe they're hitting people with negative equity on their homes?
I applied (and got approved) for my only credit card when I turned 18. I'm now almost 21. I don't think there's any harm in you applying for a card and using it wisely.
My problem was that I saw it as free money and I could just pay back my debt whenever I felt like it. (I was young and had NO idea about finances at all.) If you buy something, make sure that you can afford it with cash first. If you can't buy that $3k entertainment system out of your own pocket, you don't need to buy it with credit.
@aguacarbonica: I got one when I was your age so I could order school books online and have amazon ship them to my dorm (pedestrian-only campus, and those books are heavy!). Paid it off right away. Used it just twice a year at first for that kind of thing.
I'm 31 now, I've only carried a balance once -- the month I got married. I was a little distracted. :)
@thetango:
They reserve for losses on unfunded commitments(the amount of your credit limit you have available), so if the the commitments are lower, the less they reserve.
Keeping your FICO up to the best possible terms is awesome! We qualified for a 30 year mortgage to buy a home at the record rate super low 30 year mortgage at 4.75%! We have a 807 and an 804 FICO. No debts at all too.
I was a little worried when I recently got a letter from my bank in the mail, but it was just to tell me that they were raising my credit limit. So.. I guess I must be that profitable sucker they're looking for.
..I swear I'll pay off my textbooks/etc. purchases soon!
Funny, I just had my limit raised to $2,200.
@jblack: I imagine zip codes, i.e. those representing high percentage of defaults, foreclosures, etc., still have some effect on ease of getting new credit and having existing lines reduced - even for those with perfect credit.
That ~1.6% mentioned above just might happen to live in the wrong zip codes.
@NotYou007: I don't know what I would do without a credit card. It's the safest way to buy online and the safest way to buy big-ticket items.
Having a big credit card limit is too dangerous for most people. They lack the discipline to handle it. Any person that can't payoff their credit card balance each month has some kind of financial problems. Those problems may be only temporary. But the current credit card mess doesn't apply to those folks.
I am still trying to figure out how one private company gets collect your data and determine your credit worthiness and has no government regulation upon it.
One would think there would at least be a method to see your file or challenge your FICO if you disagree or find errors. Nobody even knows exactly how they determine your score.
@Intertrode: Same here, even the most miserly of them all, Discover jacked mine up another $100. Being below the radar as a sub-$50K blue collar IT tech is making my money seem more stable I guess...
@usa_gatekeeper: Our car insurance was cut in half when we moved. Living in the crappy part of town jacks your insurance rates. I can see how a credit extending bank might use your location in such a manner. For the record I don't agree with doing so.
@thetango:
They will give that extra credit to someone who pays their bill on time, carries a balance, but might be nearing their charging limit.
Happened to me. You ever try to buy international plane tickets when your $4,000 limit credit card is now $800? Yeah...
@aguacarbonica: Go ahead and get the card. I had quite a bit of trouble the first time I tried to buy a house on account of lack of credit history -- what little I had was pristine, but it wasn't enough for lenders to go off of.
Just be judicious about how you use it.
@Keat:
Well in 1996 not many people where making purchases online. Even Amazon was a very new company back then. As for making a big ticket purchase a person with no or very limited credit is only going to get a CC with a very small limit, around 500 if they are lucky.
Rebuilding my credit right now. 622 and 676 FICO scores, pay off the card every month and yet it just got upped by 30% this past week.
I guess they figure I'm more likely to make them money by overspending?
Oh, now I can get that extra Mac I want...
The interesting concept of all this? They reduce the credit of a person who is responsible and paying down their card. These people by using their card was still making them money.
When their credit limit gets reduced, many either stop using the card or cancel it out of spite. This ends up with the credit card company making absolutely nothing and thus they just lost everything they got from that person.
@thetango: What they are referring to is the bigger picture.. they are trying to cut the bottom line figure they have that shows how much credit is available. The more they have available the more they can give to someone who is going to charge that new boat to their card and still pay it off.. It's all about the bottom line number.. Take from the poor and give to the rich.. it sux...
This all stinks to high heaven. Banks issue credit cards. They reduce the credit limit of people who pay their balances (and hence are unprofitable). This limits their available credit, which damages their credit score. So when these unprofitable people need to make a major purchase and go to the bank to get a loan, they get one for a larger interest rate than they otherwise might have gotten, and end up paying more in interest.
Couldn't you argue that unduly lowering your credit limit is a form of slander or defamation? It says to other lenders that you're not as credit-worthy as you really are. It can even affect your ability to get a job, or a good apartment.
Surprisingly, my Grandma just recently had her credit line cut by over $1000. The reason this is surprising is that she is seemingly their perfect customer. She has a high income and pays her bills on time, yet she always carries a balance. So the CC company gets their money while still making some interest too. You'd think they wouldn't cut the credit line of a customer like that.
@NotYou007: LoL that's what you think.. check again because 5 minutes after you posted that its now at 29.99% Mmmmm... exciting :)
@bohemian: bohemian, I wasn't so much referring to so-called redlined zip codes (the existence of which many agencies deny), but was referring more to large areas of zip codes in, e.g., California, Florida, Michigan, etc. - the hard hit regions.
@KHook321: They probably don't examine cards on a case by case basis, but instead just apply the changes to cards that fulfill some specification
This is just as bad and jacking someone's APR to 30% with a good history or like being a day late .
I thought the more months you paid interest the more the credit card company makes . So if you have a higher limit in theory you'll be making payments longer . Samething with a lower APR ,the lower it is the longer you are likely let the balance run .
How about giving a customer positve incentive to pay off their balances rather than doubling the interest rate . Or how about giving a customer a credit line that they seem to be OK with rather than shrinking and running the risk of running into credit limit increase fees which increase the customers payment .
It's like the credit card companies are having trouble rigging the game right now so they not only do not know what to do it's like they want all the players to quit who don't play by their rules . Except they're going to wind up loosing players and money in their game of gouge the customer .
The whole credit score system is a big mess up period. You can pay your bills on time, pay off cards, pay more then minimun all this nonsense and half the time you won't see any change in your credit score, if anything it might go down. Years ago it was basic idea that if you paid on time and paid them off you would see your score go up alot, now with the new system its all wacked out. I got so tired of trying ways to get mine to go up that I just gave up and started paying bills one minimun at a time, and don't even bother paying them off lol.
It's ok even if they do. I'm paying off the card this week but they might turn around and jack up my APR for not carrying a balance.
Exactly! I told Capital One lately to eat it when they told me they were raising my rate. Now If I were to pay off my $1000 balance tomrorow they would make nothing on me, and then loose me forever once the account closes out, so that change me racking up up another balance is not going to happen so in the end like you said, there loosing future business.
Amex gave me a Platinum in December. In February HSBC droped me from a $10k limit to $300. I had the account for over ten years, ran a balance at times, but not in the last couple years. I canceled the account, told them that I had no need for a card with a $300 limit and that it was insulting to have them lower the limit like that after a 10 year history with no negatives. Screw 'em.
Strange... I just went into my Chase account today... and my credit limit was INCREASED by $3k
@aguacarbonica: There is nothing wrong with getting a credit card and using to wisely. Meaning, if you put something on the card, do not carry a balance and pay it off each month. If you do not earn enough nor have the will power to do so, stick to debit/check cards.
I believe everyone should have an emergency credit card. And by "emergency" I mean, someone close to you is very sick/has died and you need to fly across the country asap and the funeral home won't bury your grandma 'til you pay for the extra limo but the bank needs a death certificate to release your deceased relatives funds or something. Not that I'm speaking from experience or anything.
@ceejeemcbeegee... twitterin' and tumblr-in':
So a person with limited credit gets a CC and they will have a very low limit. As I said before, at least 500 or less. That will not get you far in an emergency much less get you a plane ticket if you have to travel far.
I know this first hand as my mother passed away Jan 18th from cancer and she went down hill fast and a round trip ticket was over 1300 dollars with that said how do you obtain a higher limit if you continue to pay off the card each month?
Unless things have changed you will not build a postive credit record if you pay off the card every month. They are not going to raise you rate if you keep paying off the card. They make nothing off of you and it does not prove you have the ability to make a monthly payment. It only proves you can pay off the balance each month and that does not show you are credit worthy.
I was taught back in the late 80's to build credit you must show you can make payments on time every month for at least a year. Yes, the make money but it shows you are a credit worthy because you can make a payment on time.
This non-sense of paying off the credit card every month for someone that has no credit history or very limited credit history sounds just dumb to me. If you have well established credit then go ahead but to tell someone just starting out to pay it off each month in my opinion will not improve their credit score and is dumb.
@u1itn0w2day: I just paid off a huge chunk on a credit card...and got the limit reduced by that chunk based on "a review of my credit history". Having never missed a payment on any card, the review was done in the four hours between my payment being processed...and lunch.
@thetango: The line of credit they've promised you constitutes a liability - because you could draw on it at any time, and then potentially not pay it off.
Reducing your credit reduces their liability.
@Sudonum:
I've heard rumors that Amex is having serious liquidity problems and is cutting any availability they can.
Ironically, when considered the effects to you if they had outright closed the account to you (age of account, mark on record for losed by company), they may have been trying to do you a favor by cutting you to $300.
Same sheit here, except my increase was $4k, happened in January, and the card was issued by a local credit union (processed through Chase).
What is weird is my normal monthly average purchase is about $1k. I always pay off the charges every month. My single largest monthly purchase in recent history was about $3900 and my credit limit is $45k.
So they farking increased my credit limit to $49k.
Why? It is a personal card. I ain't going to buy enough to even get close to the old limit so why increase the limit.
My guess is the bank (either Chase or the local CU) is trying to demonstrate their efforts to increase the lines of credit to their customers. So they increase the lines of credit to people who won't use it and if they do use it are most likely to pay if off immediately.
What a waste.
The large local (regional) bank has been calling and doing mailings since late January asking if I need a loan or want my CC limits increased.
Don't they think if I needed a loan I would ask for a loan?
I strongly suspect this is their effort to "increse leading" without actually increasing any lending. They know I am going to turn them down, so it is a safe offer. And they can tell Uncle Stupid that they have made an effort to lend $ but nobody wanted to borrow any $.
I've been wondering about this trend for a while now. I'm obviously missing the bigger picture here/being dense ;).
How does reducing the amount of available credit affect a credit card company's bottom line? If I'm not using it, how am I costing a credit card company money?