Unsecured debt should not be legal. It is the true cancer within our financial system and not one elected official has the strength to talk to the American people about how their immaturity and gluttony is crippling our childrens' future. It is the greatest problem our families face, yet very little attention has been focused on it for fear of estranging a constituency.
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Bah, Humbug!
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For the most part, these credit-card reductions are affecting the unused portion of consumer credit lines. Someone who has a $20,000 credit limit but is only using $5,000 of their borrowing power may see their credit limit cut to $10,000. In other cases, issuers are "chasing the balance"—in the above example, they would cut the credit limit to the $5,000 level. As the customer pays the balance down to, say, $4,000, the limit would also be decreased, to $4,000.
All of that has hurt consumers' credit scores, because one important element of the score is the percentage of available credit being used. The higher that percentage, the worse the score. Consumers who see their scores fall will have a harder time getting car loans, home-equity lines of credit and those store-based credit cards.
Tightening credit limits will force some consumers to spend less this holiday season or to spend as they go, with cash and debit cards, rather than with credit cards. That may be better for their bottom line, but worried retailers are starting the season early in the hopes of snagging more of those customers who have to spread out their holiday spending over a longer period. The trees and toys have been out for almost a month at Neiman Marcus and Wal-Mart, notes analyst Telsey.
For consumers, the silver lining is prolonged, deep discounting as the holiday season begins. But before heading to the register, they'd be smart to double-check their limit. Issuers send letters to cardholders when they're cutting their credit, but "those notices aren't designed to be noticed," says Ulzheimer. That means you may have thrown it out with the credit-card offers that are still coming, albeit less frequently, in the mail. Charge more than your new line allows and you could be rejected at the register or hit with a $30 over-limit fee. And that's worse than embarrassing.
© 2008
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