At first, the credit crisis didn't affect consumers unless they were shopping for credit cards or loans. Not anymore, anyone who has a credit card is at risk of the effects of the credit crunch. As credit card issuers cut credit limits and increase interest rates with little notice, it's more important than ever to pay attention to what credit card issuers are doing and to adjust accordingly.
Interest Rate Increases
In November 2008, Citibank announced it would increase interest rates for nearly 10 million cardholders. About Credit/Debt Management readers reported double and even triple interest rate increases that skyrockets their cost of carrying a credit card balance.
Consumers have a few choices when it comes to responding to interest rate increases. While many choose to opt-out, it's not always the best decision. Opting-out nearly always leads to your credit card being closed. Since a closed credit card can affect your credit score, opting-out could hurt you worse than it hurts your credit card issuer. In some cases, paying off the balance at the higher interest rate is better, especially it if means saving your credit score.
- 5 Ways to Respond to an Interest Rate Increase
- How to Opt-Out of an Interest Rate Increase
- 3 Reasons You Shouldn't Opt-Out
Credit Limit Cuts
Neither good credit nor customer loyalty seemed to matter as American Express slashed credit limits by thousands of dollars. One reader, Jennifer says of her credit limit:"SLASHED! And I have a credit score of over 800! I got my email yesterday that my AMEX Blue, credit limit of 30,000 was being reduced to 6000. I ‘was’ a very loyal and happy customer. I have never had a late payment, etc etc. I use this credit card for my consulting business so I charge a lot of things for my clients. I need at least 20K per month. [...] Bye bye AMEX."And 'jab' comments,
"I have been a loyal AmEx customer for over 12 years… never late with a payment and always paid more than the minimum… They cut my limit from $14,000 down to $2000 today (I have a balance of about $1500)...Now it looks like I’ve used 75% of my credit!"
Credit limit cuts are another thing to look out for during the credit crisis. You might not receive your notice before the credit limit decrease takes an effect, so it's a good idea to double check your limit before making purchases on your credit card. You can't take for granted that your limit is the same as it was the last time you checked.
- What to Do About Credit Limit Cuts
- 5 Ways to Avoid Credit Limit Fees
- Stop Repeat Over-the-Limit Fees
Difficulty Getting New Credit
Credit card and loan delinquency rates continue to increase. As a result, banks are unwilling to lend to each other and even less willing to lend to consumers. Without an excellent credit score, you'll have a hard time getting a credit card or loan during the credit crisis.
Continue Reading to Learn How to Deal With Credit Crisis Effects