Banks Tightening Lending Standards on Credit Cards
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by: barrywaters
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The recession may change the way both banks and consumers deal with credit cards. Like mortgage lenders, banks who offer credit cards are tightening their lending standards. They are decreasing credit limits, increasing interest rates and closing accounts that have been inactive too long. Many banks have already decreased credit limits for consumers in good standing. Customers who are considered subprime have been hit the hardest though, as over 50 percent of them have had their credit limit decreased. Banks are examining credit reports and reviewing credit scores for consumers who have existing credit cards with them. They can modify the terms, limits and interest rates for a current customer they feel might be a credit risk. Interest rates may be increased, which means minimum payments will increase. Banks may even cancel some credit cards that have been inactive for over 12 months. Lower credit limits on credit cards can affect your credit score. A large portion of your score depends on the percentage of debt you carry when compared to your maximum allowed limits. That means that if your credit limit is decreased, the same balance you had on a higher limit now uses up a larger percentage of your limit. That could, in turn, negatively impact your credit score. If you had a card you did not use for a long time that was cancelled by the bank, it could impact your score too.
Over half of the people that have credit cards in the United States carry debt on those cards. This translates to a large number of consumers who will be directly impacted by any changes banks make regarding credit cards. Call your bank if you have received a notice of modifications to your credit card account. If you make your payments on time and historically carry little balance, it is likely the bank will restore your old terms. You do not stand a good chance if your account is not in good standing or you carry a large balance regularly.
It is always best to pay off your balances in full each month. If you currently carry debt on credit cards, however, read and understand the terms and rates for those cards. Understand all changes on those credit cards that the bank may notify you about. Your first goal in the New Year should be to tackle those carried balances. Start by paying more than the minimum amount each month. When possible, make cuts to your budget so you can put those funds toward your outstanding balance. If you have debt on more than one of your credit cards, most people find it easiest to focus on the card with the lowest balance first. You may wish to transfer debt from higher interest credit cards to one with a lower rate. Do not wrack up more debt, even if you have a lower interest card. Be diligent and do not lose sight of your goal. The freedom of being debt free will be worth all your hard work.
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