CHESSNOID

It’s no secret I have discussed this practice of what American Express has done in cutting all my limits. I noticed when I went online to check my balances, they removed the information showing credit limits on the front page. You have to make a few clicks to get that information now. LOL. I know they took this convenience away because as they continue to decrease the entire portfoilo of customer’s credit lines, they will get calls. Just like I did when I saw them trim all my limits down. It is more obvious now then when I first noticed it, that they are doing it across the board indiscriminately. In that process of course, they are alienating the current client base. I haven’t made any late payments as well as most of the people they are doing this practice too, so the first reaction is to call in and say “Why did you reduce my limit?” They give you a scripted answer that is not true “…we monitor your credit and something has changed”.

You may think no big deal I will just use another credit card for now on, but later you do find out that your FICO takes even a bigger hit.

Here’s how that happens: Let’s say a cardholder has a credit limit of $10,000 and a balance on the card of $4,000. The card company worries that large balance may increase the prospects for default, so it lowers the credit line to $5,000.

But in doing that, it completely changes what is known as the credit utilization rate, raising it from 40 percent to 80 percent. That is then factored into the calculation of one’s so-called FICO credit score, which measures creditworthiness, according to Craig Watts, a spokesman for FICO-creator Fair Isaac Corp.

A lower FICO score could make it more expensive for someone trying to borrow money. For instance, someone taking out a $25,000 36-month auto loan would see an interest rate of about 6.4 percent and a monthly payment of $765 if they were in the highest range of FICO scores of 720 to 850, according to Fair Isaac’s Web site myFICO.com.

That then jumps to an interest rate of 7.3 percent and a monthly payment of $776 for those with a score of 690 to 719 and as much as 15 percent or $866 a month for those with the lowest FICO range of 500 to 589.

More credit card companies are doing this now. Probably at the worse time for most people since the cost of gasoline is changing everyone’s spending budgets. I thought this Yahoo AP article was great and this will probably affect most everyone in some way.

Such moves come as consumers are increasingly using their credit cards as a source of liquidity, especially since it’s becoming harder to tap their home equity as much to pay for everything from renovations to vacations to trips to the mall. As the housing and mortgage markets have collapsed, lenders have also reduced the limits on what are known as home equity lines of credit, or HELOCs.

Net home equity extraction fell nearly 60 percent from a year earlier to $205 billion in the first quarter, according to Merrill Lynch. The investment bank also notes that some $1.2 trillion in equity and housing wealth was wiped out in the first quarter alone because of plunging home values.

At the same time, revolving credit usage — which includes credit cards — accelerated sharply to a year-over-year growth rate of about 8 percent in recent months. That’s the fastest rate in seven years and well ahead of the 2 to 3 percent rate of growth from 2004 through 2006 when home equity lines of credit were a bigger source of cash for consumers, according to Merrill.

But as credit cards are used more frequently, that often results in bigger balances left on the cards. What’s worrisome is that consumers who are faced with a number of ugly economic scenarios hitting at once — falling home prices, surging commodities costs and a weak job outlook — won’t be able to pay their bills.

American Express warned Wednesday that more of its customers were falling behind on their payments. That led some Wall Street analysts to forecast that the card company may soon lower its predicted earnings growth for 2008.

“Business conditions continue to weaken in the U.S. and so far this month we have seen credit indicators deteriorate beyond our expectations,” American Express’ CEO Kenneth Chenault said in a statement.

That’s why card companies including Washington Mutual, HSBC and Wells Fargo are lowering their credit limits, according to data from the consulting firm Institutional Risk Analytics.