Credit APRs Up, Limits Down = Credit Scores Down – Episode #111

More reports of rate increases and credit limit declines probably equals declines in credit scores.

Another story today mentioned Kevin Johnson, a small business owner from Atlanta, who saw his credit limit on his Amex go from $10,800 to $3,800. The reason given: he was shopping at stores where other consumers shop have high risks. He had only one change from a few months ago, he shopped at Wal-Mart. He was so outraged, he started a site called NewCreditRules.com.

Another story reported by Lita Epstein on Walletpop, has someone with a credit score of 760 wondering why her Chase card got jacked up to a 19% interest rate. She paid off this particular card in full each month, so she doesn’t have to worry about paying that big rate as long as she continues to pay in full each month. The only other choice given her by Chase was to cancel the account before the rate went up.

The NYTimes exposed these issues and Amex announced that they decided to stop “behavioral analytics”. While others are speculating that this will continue, I’m going to hypothesize that the issuers are going to reduce limits on all types of customers to avoid such “discriminatory outcries”. In most cases, they can say, hey you aren’t using most of your limit, so we’ve reduced it slightly. Most customers won’t know to complain as they miss the impact that credit utilization ratios have on their ability to get future credit. Unless Congress gets involved and starts limiting the card issuers, we should see this continue into 2009.

13.38% was the average interest rate on credit cards in 2007. We will have to wait a few weeks to see this figure come out for the 2008 year. My guess is that is will look unchanged. If issuers keep raising the rates, then the 2009 numbers will start to move up.

It follows logic that if rates go up, credit scores will start to fall.

Check out my earlier post to see how credit scores have been dropping in Ohio counties.

Similar Posts:

• Are Credit Card Limits Being Lowered? Will This Impact My Credit Score? – Episode #42
• What is a Virtual Credit Card? – Episode #32
• Evidence Credit Scores Are Dropping – Episode #101
• Annoying Myth: Paying off Full Each Month Doesn’t Build Credit Scores – Episode #106
• Pre-Approval Credit Scores – Episode #102
• Should College Students Get Credit Cards on Campus? – Episode #23