Look for Lower Limits on Credit Cards Across the Board

There is no doubt that we will see credit card issuers begin to lower the credit limits extended to their customers. In an effort to limit their exposure to an increasingly tumultuous credit environment credit card companies must adopt a protective posture in order to survive.

Just as we have seen with the mortgage industry, the credit card industry is fraught with outstanding debt and an alarmingly sharp rise in delinquencies and charge-offs. One of the ways the industry can lower their exposure to future credit risks is to lower the lines of credit that are granted to cardholders.

The Wall Street Journal reports that highly respected analyst Meredith Whitney of Oppenheimer & Co. expects to see more than 2 trillion dollars worth of previously available credit being lopped off over the period of the next 18 months.

Whitney cites new accounting rules that will require lenders to document outstanding credit card debt, coupled along with limiting the ability of credit card companies to raise rates at their leisure as reasons that lenders will aggressively curtail their lending activities.

It is estimated that over 90% of credit cards have “revolving credit” at one time or another. That simply means that bills were not paid in full at the end of each billing cycle and the debt on the credit card was carried forward to the next month. I mention this because there is currently about 1 trillion dollars in outstanding credit card debt.

In the end what this all means is that we can further expect to see cuts in credit limits from financial institutions and notably, as stated here, the credit card industry. Even if you have an excellent credit history issuers may very well cut your line of credit as an across the board attempt to protect their viability as a financial services company.

Leave a Reply

Your email address will not be published. Required fields are marked *