credit cards
5 smart credit-card moves in 2009

Some credit cardholders had a rough ride in 2008. As banks grappled with rising charge-offs and default rates, many reined in risk by restricting access to credit and adjusting existing accounts.

In fact, around 60 percent of domestic banks say they tightened lending standards on credit cards during the previous three months, according to the October senior loan officer survey from the Federal Reserve.

Unfortunately, the credit forecast is mixed. For 2009, experts predict mostly cloudy skies with a chance of silver lining.

Keith Leggett, senior economist with the American Bankers Association, says "2009 is not going to a pretty year." With the employment rate expected to rise, he believes issuers will remain risk-adverse.

"I think what you're going to see (are) tighter standards being applied to get new credit," Leggett says. "You will see lenders continuing to scale back their exposure to existing lines of credit."

Expectations for 2009
Here's a look at what experts say is coming and what you should do about it.

1. Minimum credit scores will rise 

"Underwriting is a moving target," says Curtis Arnold, founder of CardRatings.com. A year ago, Arnold said consumers needed FICO scores of 700 or better to get the best credit cards rates and limits; now he says a 730 is the new minimum. "That target is going to continue to change and tick up, going into the first half of next year."

At the lower end of the spectrum, "folks that may have qualified this year or last year for a subprime card with a 575 or 600, this time next year may not qualify for a card at all."

According to the Federal Reserve's senior loan officer survey, about 50 percent of domestic banks indicated they had raised the minimum credit score needed for credit cards, and nearly 60 percent approved fewer applications for people who didn't satisfy the credit scoring requirement.

Your best money move: Take steps to improve your credit scores. Check your free credit reports at www.annualcreditreport.com and dispute errors that may be weighing down your score. Apply for credit only as needed.

2. Reform measures will pass 

Arnold expects some credit-card reform measures to pass as early as the end of 2008 or early 2009, because President-elect Obama has made them part of his agenda.

The bills pending in Congress and the proposed rules before the Federal Reserve Board would bar some of the more egregious industry practices, such as universal default. Under this policy, if you pay any of your creditors late, the credit card company can raise your rate to the default APR.

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Arnold fears that such added regulation may bring about the end of zero percent balance-transfer offers and teaser rates on credit cards if issuers react by making credit more expensive for everyone.

Promotional offers already aren't as generous as they were a year ago. "I'm predicting in 2009 that this trend will continue, and it could exacerbate to the point that we just never see any zero percent offers anymore, for example," Arnold says.

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