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45% Less Credit in Americans’ Wallets

This article was written by in Credit. 8 comments.


Meredith Whitney, an analyst with Oppenheimer & Co. is predicting that credit card issuers may cut as much as $2 trillion worth of available credit in the near future, representing about 45% of today’s levels.

The Motley Fool has decided to call this The Death of Credit Cards, but we’ll be co-existing with them for as long as people want to borrow from their future selves. (That, or you’re clever like my man Flexo, who only uses them for the rewards. I’m not that clever, but I’m working on it.)

Here’s the crux of the story:

Closing millions of accounts, cutting credit lines and raising interest rates are just some of the moves credit card issuers are using to try to inoculate themselves from a tsunami of expected consumer defaults.

We’ve already seen Citigroup raising rates for nearly all customers across the board (even though the national average credit card interest rate continues to decline).

Citigroup said it would be raising rates 2 to 3 percent, but from the comments we received on the story a couple of weeks ago, the average seemed to be about 7 to 10 percent. And this seemed to be happening even to people with good FICO scores and payment histories.

Now Citigroup, as well as Bank of America and JPMorgan Chase, are considering closing accounts, as well as lowering credit limits. Given Citigroup’s recent history, what are the chances that these actions will only be taken on customers with poor histories? If you’ve delicately balanced your available credit in order to keep a high FICO score, this could have serious repercussions.

Published or updated December 1, 2008. If you enjoyed this article, subscribe to the RSS feed or receive daily emails. Follow @ConsumerismComm on Twitter and visit our Facebook page for more updates.

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About the author

Smithee formerly lived primarily on credit cards and the good will of his friends. He is a newbie to personal finance but quickly learning from his past mistakes. You can follow him on Twitter, where his user name is @SmitheeConsumer. View all articles by .

{ 8 comments… read them below or add one }

avatar Kate

This is one effect in the maelstrom of the economic meltdown which shows up the benefits of having good financial discipline and a strong practice of frugality.

It’s about to get worse for those who don’t have their debt under control. For those who, like Flexo, only use credit cards for rewards or to play the float, there’s no issue here. If you use only a respectably small fraction of all your available credit card credit, then there’s nothing to worry about if your credit limit falls. If you pay off your credit card in full every month, then the APR of your credit card is immaterial. Who cares if it goes up? If both those things are true for you, then the worst thing that can happen is that the rewards program might be dropped or reduced.

I don’t mean to gloat, but honestly, I don’t even know what the APR is on my credit card. It’s never been an issue. Having one’s financial house in order means you can choose your credit card based on the benefits to you, rather than the penalties.

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avatar Smithee ♦1,358 (Quarter)

Another thing I just thought of: does this also mean that companies will be less willing to offer credit to new customers, like the typical college student? Will it be harder for people to start a credit history?

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avatar CJ

I see this as a good thing. We have been too reliant on debt. Since we have relied on debt so much, it’s been ingrained into our society and economy which means everyone expects you to have it. It’s practically been heresy to not have at least a few credit cards. Personally, I don’t think I will ever use my credit card again unless absolutely necessary. I now have $10,000 in my emergency fund and that should be sufficient for quite some time.

DOWN WITH DEBT!!!

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avatar Mr. ToughMoneyLove

“The Death of Credit Cards” Gosh, wouldn’t I love to see that epitath written in stone.

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avatar Mike L

Amex cut my credit limit from 9k to 6k because my ‘balance to limit ratio was too high’; however, by cutting my limit the ratio is even higher!!! Thanks AMEX!

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avatar Bill

It may be a bit premature to start singing “Ding Dong the Witch is Dead” but I, for one, won’t mourn long if this trend continues!

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avatar Mike

Smithee’s question reminds me of my own college years, back in the long, long ago 1989-1992 period. With no debt of any kind and a modest but respectable $1500 in savings, and a 24-hour per week job, I couldn’t get a credit card because… I had no credit history. That’s right: I couldn’t even get a card with a $500 limit even though I had $1500 in the bank!

The only way I got a credit card on my 2nd try was by applying for a card affiliated with the national honor society to which I belonged.

Now– yes, even as recently as last week– it is a simple matter of entering a few words and numbers on a website and they throw money at me for 15 months at 0% in a matter of days. What a world.

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avatar Quasibozo

In this country of inalienable rights,..in this country of privilege,..in this country of luxury and opportunity (in this country of consumerism) it is, unfortunately, one’s inalienable right to be fiducially irresponsible. Too many are peer pressured into assuming privilege and luxuries of the affluent. People have to get their monetary act together.
For instance, most average households probably have a third of their income targeted toward electronics, media and communication. They’re luxuries, not necessities. Privilege of those who can comfortably afford it, not a right. Same goes for cars with wheels and tires that are valued more than the vehicle it’s on, or the second house on the Cape, or the time share in Cancun.
Over indulgences, competitive gifting, premium clothing, and fast food. It’s not just global warming that’s approaching critical mass.
How do they manage this? Credit cards. The end results of people living ‘over-their-heads’ is the empowerment of credit issuers to assume clout of the gods that challenges government intervention. What is it costing the citizens to legislate all of these regulations? What depressing cyle.
I read advice that it is beneficial to hold multiple credit cards, but not too many. I don’t see that logic. One or no card and a good financial discipline is my new mantra. And set up automatic electronic payment for your budget.

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