Tighter terms on cards

By ASSOCIATED PRESS | Monday, November 10, 2008

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NEW YORK

Don't throw out that letter from your credit card company. It may be notifying you of a reeled-in credit line, interest rate increase or even an account closure.

In this recessionary climate, credit card companies across the board are tightening the reins on cardholders to minimize their exposure to risk. Such actions could hurt your credit score and, in turn, your ability to get an auto loan, mortgage or even another credit card. So, heading into the holiday shopping season, make sure you're aware of any changes to your credit card terms.

In coming weeks, for instance, American Express is instituting a broad-based interest rate increase of 2 to 3 percentage points on cardholders. The increases are the result of an expected rise in charge-offs, or balances written off as not being paid, the company said earlier this month.

Across the industry, credit card charge-off rates rose to 6.8 percent in August, a 48 percent jump from the same period last year. According to Moody's Investors Service, it was the 20th consecutive year-over-year increase.

Moody's expects charge-offs across the industry to continue rising into next year, eventually surpassing peak rates seen during past recessions.

Further pressuring credit card companies are new industry regulations set to be adopted by the Federal Reserve later this year. One proposed regulation, for instance, would ban credit card companies from raising interest rates on existing balances.

"The new regulations are going to hamstring [card companies'] ability to manage accounts the way they have in the past," said John Ulzheimer, president of consumer education for Credit.com.

To protect your credit score through these times, keep these points in mind.

What triggers a change

Even if you're not doing anything differently, lenders may be clamping down on your account. That's because credit card companies are re-evaluating their criteria, said Carol Kaplan, a spokeswoman for the American Bankers Association, an industry group.

In a robust economy, for instance, a $15,000 balance may not have triggered any alarms. Today, it may be reason for a higher rate or a lower credit line, Miss Kaplan said.

Other reasons lenders may tweak terms include late payments, partial payments, exceeding credit limits.

Not using your card often enough also could be cause for a change or even prompt the company to close the account.

"The bottom line is, card issuers are looking for a reason to say no. They're going on defense and minimizing their exposure to risk," said Greg McBride, a senior analyst at Bankrate.com.

New regulations coming

Credit card companies also may be changing terms to gird for new regulations set to be adopted by year's end.

The Federal Reserve is still ironing out the details, but one proposal would ban companies from raising rates on existing balances. Increases could be applied only to future purchases.

"In some cases, we think lenders are taking the opportunity to raise rates now," said Ruth Susswein, deputy director of national priorities for the advocacy group Consumer Action.

Another proposed regulation would prevent companies from punishing cardholders for reasons unrelated to their accounts. Right now, companies can raise rates or lower limits based on information that shows up on credit reports cards - whether or not such activity had an impact.

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