The numbers, the anecdotes and even the credit card issuers themselves tell us they are cracking down on cardholders. Even those with stellar credit scores are feeling the sting.
Many card-issuing banks are trying to rein in risk amid rising delinquencies and charge-offs -- and before pending legislation and regulations pass.
"They're reducing lines, they're closing accounts based on score cuts. I'm seeing data that says that even the higher score cuts -- 750, 760, 720, in that range -- that people are having trouble getting credit," says Dennis C. Moroney, research director of bank cards at TowerGroup, a financial services consulting and research firm.
Since the third quarter of 2007, domestic banks have been tightening their standards for credit card loans -- "tightening" meaning that financial institutions have restricted access to credit. In July, nearly 65 percent of U.S. banks reported a tightening of their lending standards on credit card loans during the previous three months, while only 5 percent of banks indicated as much in October 2007, according to the Federal Reserve Board's latest Senior Loan Officer Opinion Survey.
The majority of credit card issuers are whacking credit limits. A July 2008 report from Javelin Strategy & Research found that 62 percent of credit card issuers are lowering credit limits to existing cardholders. Only 8 percent are increasing lines of credit.
The fact that banks are cracking down on some credit card accounts doesn't surprise John Hall, spokesman for the American Bankers Association, a banking trade organization.
"It's appropriate when the economy heads south that banks reassess their risk, the risk to the bank. And borrowers may see their credit lines shrink," he says. When the economy is thriving, he says, lines of credit may increase because factors like widespread job loss pose a lesser threat to cardholders' ability to repay.
We checked with Bankrate readers through our online newsletters to see if their credit limits had declined. Dozens wrote e-mails indicating that cards they didn't use often got a credit limit cut, or were outright canceled.
We received a number of e-mails like this:
"My American Express credit limit just got slashed by $4,000 and yet I have high credit scores. I really didn't care because I don't use this card much," writes Ron Niblett, of Newark, Del.
Representatives from several major card issuers confirmed that inactive cards as well high-risk accounts could wind up on the chopping block.
Issuers react to economic pressures
Representatives at American Express, Bank of America, J.P. Morgan Chase and Discover Financial Services told us how their companies' credit card lending standards have changed over the past couple of years. Besides considering credit and application information, several mentioned that the company may look at nontraditional risk factors, such as where you live, whether you hold a subprime mortgage, spending patterns and behavior changes.
Credit issuers managing risk
1. American Express: "Naturally we're being more targeted in terms of managing our risk prudently within what we're calling appropriate customer segments. This includes closely evaluating prospects, new applications as well as existing line assignments," says spokeswoman Kim Forde.
"Some of the things that we might look at are the traditional things you might expect, like your American Express payment history, your credit bureau data, your reported income. We'll also at customers' spending and payment patterns. We are looking at other types of details, like those holding a subprime mortgage, those who live in geographies where there's perhaps been a greater deterioration in home prices."
Forde says no one factor overrides others but each contributes to the overall risk profile.
As for inactive cards, she says, "We will close inactive accounts where we're seeing a change to the consumer's credit profile since the time they obtained the card."
2. Bank of America: "In response to the current economic environment, we have tightened underwriting criteria across our credit card portfolio and we continue to closely monitor the external market environment and review our credit requirements in light of changing conditions," spokeswoman Betty Reiss wrote in an e-mail.
"On new account applications, we are looking at a range of factors, including FICO, and may refer some applications for judgmental review by credit specialists, particularly those from areas of the country that are experiencing more economic stress."