Credit Card Squeeze

06:42:11 AM Thursday, February 07, 2008

Lenders Tighten Standards on Credit Card Deals

It has never been easy to get approved for a plastic with enticing terms, as lenders have always been particular about trustworthiness of their clients. Now that everyone is talking about credit crunch and slow US economy, lending organizations take actions they deem appropriate in order to limit risk of credit defaults, and enormous losses they already bear.

Increasingly, lenders tighten credit card standards, and this trend is still happening even despite of Fed rate cut to 3 percent. It must be said that large credit issuers like Capital One, American Express, and Citigroup reported about the losses they bear because of the growing number of credit card delinquencies, and credit spending slowdown. What actions do they take and how do these changes affect regular customers?

First and foremost, credit card issuers require higher credit scores before approving customers for new credit cards. Favorable score is in great demand these days. Nationwide lenders strengthen their credit card application rules, especially for credit users living in states that have been hit most by the subprime mortgage crisis, i.e. Florida, California, Arizona, and others.

All the more so, you are to be patient these days while making your credit card deals, for most lenders will scrupulously check your credit report and look at various factors before issuing a new card. Actually, some lenders tend to check more than one credit report, so they pull credit reports from various credit bureaus in search for more information about their potential clients.

While some lenders put much value on customers' ability to manage credit, the others try to regulate credit lines of their clients. Meaning, if customers show some signs of credit mishandling, credit lines on their cards will be reduced respectively. It's also a general practice to set limits on credit-line increases, this way it's getting even easier to keep customers' credit accounts under control.

Speaking of credit card fees, the ones associated with late payments rose significantly. Now they may be as high as $39. And they are expected to climb up by 6 percent this year. Exorbitant credit penalties are a nightmare for all credit consumers, so this tendency is definitely bad news for most cardholders.

It must be mentioned that the number of applicants qualified for new plastics dropped by 8 percent for the past year. One of the possible reasons of this downturn is that credit issuers cut the number of direct-mail credit card offers to their potential clients. According to the market-research companies, it fell by 16 percent.

Instead of that, creditors do their hardest to strengthen their relations with existent customers. Really, credit card loyalty seems to be the universal solution for numerous problems existing in the banking sector. But all in all, credit card issuers are very cautious about new clients, that's why they prefer to pitch their cards to loyal credit customers. Let's hope that their attempts to offset what they consider as big risk won't hurt diligent consumers and those who handle credit responsibly.

It's absurd to pay enormous fees for the card that does more harm than good.