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Tightening Credit Card Market
 Dec 11, 2008


Credit card companies are affected by our struggling economy. Credit card companies are requiring higher credit scores and increasing their interest rates and credit card fees. Read on to find how this tightening credit card market may affect you.


Last year, when the subprime mortgage market crashed, it took the credit market with it. Pretty soon, banks were worried about lending to each other, and worried about lending to consumers. When this decrease in liquidity in the credit market was seen, it started to affect confidence in the economy. On top of that, banks and other finance related organizations that had lost money on subprime mortgages began laying people off.

Not only were people being laid off, but also gas prices started to rise and food prices inflation set in. Wages remained stagnant, and job loss continued. These factors led to decreased spending on consumer goods, and started leading to foreclosures on homes and delinquencies on credit card and other loan payments. Indeed, with the current economic downturn, combined with inflation, it is difficult for people to make all of their payments. And credit card companies are starting to take notice by tightening their lending standards.

Tighter lending standards for credit cards

The U.S. Office of the Comptroller of the Currency conducts a regular survey that includes information about lending standards. In 2007, the survey found that five percent of banks tightened their credit card lending standards. In 2008, that number has jumped to 35 percent. This is a direct result of the tightening credit market and worries that some people will not be able to pay their loans or make their credit card payments.

Some of the tighter lending standards include such items as:

  • Higher required credit score.
  • Lower debt to income ratio.
  • Stricter requirements for past payment history.
  • Increased verification of income.

Credit cards aren't the only area seeing tighter lending standards, either. Home equity loans, home mortgage loans, car loans and other consumer loans are all experiencing tighter lending standards as lenders worry about whether they will be repaid.

Consumers affected by the tightening credit market

Consumers are being affected by the tightening credit market in very real ways. First of all, tighter lending standards mean that it is harder to get a credit card. "Prescreened" offers are showing up in mailboxes less frequently. The offers for 0% APR introductory rates are becoming rarer, and the intro periods becoming shorter. This means that consumers who rely on credit cards to help them through rough spots, or who use 0% APR offers to consolidate debt and lower their interest rates, are finding things more difficult.

Another thing that is affecting consumers includes the higher interest rates being charged. Even though the Fed rate is quite low, credit card companies are starting to raise their rates and their fees. This is because the tightening credit market is leading to less liquidity and income for financial organizations. One way they can earn money is by increasing fees charged for over the limit balances and late payments. Another way is to charge more interest so that they are getting "free" money. All of this affects consumers' abilities to pay back their credit cards in a timely fashion.

The first people to be affected by tighter lending standards and fewer credit card offers in the mail are those with fair to poor credit. Credit card companies are beginning to avoid such consumers as "too risky" in the economic downturn.

Getting a credit card in the current climate

If you feel that a credit card would help you find a little breathing room in your household budget with all the strains right now, there are some things you can do to increase your chances of getting an offer for a new credit card. But it may take 30 to 60 days for these items to truly help you:

  • Pay all your bills on time.
  • Make at least the minimum payment on all your debts.
  • Avoid going over the limit.
  • Pay down your credit cards so that you are not near the balance limit.
  • Do not apply for more than one or two credit cards in a six month period.

Even if you do get a credit card right now, you will likely be dismayed at the low credit limit and the higher than expected interest rate. But you will still be better off than many other consumers.



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