MoneyCafe.com

The fact that banks have gotten a bit erratic with their credit policies is causing one well know financial advisor to completely change her advice.  Suze Orman does a complete 180 and now says people should build an emergency fund before paying off credit cards.  She advises this because “the sad reality is that the credit card industry is taking actions to protect themselves with no regard to your needs or how good you have been in paying your bills on time.”   The article about her change in advice can be found here.

We have written about the situation here and here.

See:
http://finance.yahoo.com/news/Suze-Orman-and-the-New-Rules-usnews-14847657.html
http://moneycafe.com/blog/2008/12/credit-line-reductions/
http://moneycafe.com/blog/2009/03/another-round-of-credit-line-reductions/

It looks like banks are making another go at reducing credit limits.  A few months ago we warned about precipitous reductions in credit limits on home equity loans and credit cards.  SmartMoney.com is reporting that credit card issues are again getting “slash happy” on credit card limits.  In some instances credit card issuers have reduced limits below what is actually owed by the cardholder.  And the kicker, this is done without notice to the cardholder.  This situation not only puts the consumer in a bind when new charges are unexpectedly declined, but also instantly makes the account over limit unbeknownst to the cardholder.  As most know, being over limit can bring about higher interest rates and fees.  According to this article people are getting hit with fees in this situation.

Credit card companies are within their rights to reduce credit limits without notice.  They can also charge fees for being over limit.  However, to reduce a credit limit without notice and then charge extra fees is reprehensible and not what I would consider dealing in good faith with its customers.  If you have been hit by a fee for overcharging when you didn’t know or by being over limit when you had no chance to pay the account down, I would encourage you to contact the credit card issuer and request the fees be removed from your account.

If you have an experience with this situation, please share in the comments below.

See:
http://finance.yahoo.com/banking-budgeting/article/106716/How-to-Blow-Your-Credit-Limit-Without-Spending
http://moneycafe.com/blog/2008/12/credit-line-reductions/

We previously mentioned American Express was paying some customers to go away.  According to SmartMoney.com, while American Express and others are using carrots to get rid of customers others are using sticks.  Apparently, Citibank is encouraging its debtors to make larger payments by giving a little bonus for certain customers who pay more than the minimum payment.  And Chase seems to have taken a different approach, charging an extra fee for customers who maintain high balances. 

If you have gotten a carrot or a stick from your credit card issuer, please share the details in the comments below for the benefit of our community. 

See:
http://moneycafe.com/blog/2009/02/american-express-paying-customers-to-go-away/
http://finance.yahoo.com/banking-budgeting/article/106646/Card-Issuers:-How-Can-We-Make-You-Go-Away

American Express came up with a unique way to get rid of certain customers they no longer want - pay them to go away.  According to the company, select customers can get up to $300 to close their accounts. 

We are guessing it’s for delinquent accounts.  But maybe they are preemptively going after certain credit profiles that aren’t yet delinquent.  If you have received the offer, let us know your situation by posting a comment.  Feel free to post anonymously. 

See:
http://www.usatoday.com/money/industries/banking/2009-02-23-amex-close-accounts_N.htm

Mint.com has a new iPhone App which allows the user to check account balances from anywhere.  Mint.com and the iPhone App are completely free services.  This is yet another great services that frees us from the desktop.  Using your iPhone, you can monitor your checking, savings and credit card accounts; review your budget; and monitor investment performance.

It has been reported that Quicken.com will also release an iPhone App later this quarter.

Last week I wrote that banks were really starting to limit the origination of new consumer loans and credit cards.  This week we are hearing that more and more existing customers are getting their credit lines and credit card limits reduced.   A story broadcast on Yahoo has some more information.  See http://www.yahoo.com/s/996641.  You really need to be aware of this so you don’t go over your credit limit.  Exceeding your credit limit puts you in a position where you think you are financing something only to find out you need to pay cash for it at the end of the month.  This can also result in higher interest rates, as well as adversely affecting your credit score. 

Do not assume you will be notified first.  I am personally aware of instances where customers were notified after the credit line and credit card limit were cut.  Also, do not assume that your credit card transaction will not be authorized if it goes over your limit.  Many cards allow you to exceed your limit as long as you pay down the card upon receipt of your statement.  Further, do not assume you will be unaffected because you have good credit and pay on time.

Basically, banks are trying to limit the amount of credit they have outstanding to their customers.  So they are cutting back everywhere on all types of credit products.  The first wave of this started 6 months ago when lenders started cutting back and freezing home equity credit lines.  They were cut severely and swiftly without regard to credit history or original loan to value ratios.  Lenders were highly motivated to do this by the rise in foreclosures.  Small and large businesses have seen similar treatment due to the downturn in sales.  Now it is really starting to kick-in for the consumer.  The recent unemployment numbers foretell massive defaults on consumer loans and credit cards.  Banks are therefore very motivated, so expect swift cuts.

Personally, I would approach larger purchases this way.  Pay cash or don’t buy.  If you absolutely need to purchase on credit, make sure the financing is available.  It may not be tomorrow.