In the past credit card companies would base your interest rates on your personal credit profile, job stability, and net worth (assets minus liabilities). That was the past and under the new economy, they are making decisions across the board on their entire credit card portfolio.
Frankly, the credit card companies are bleeding losses through charge offs that reflect the current unemployment rate of +10%. That is an extremely high number and will continue to go only up in the near future. Thus, the credit card companies have to make up the money through higher interest rates and fees on the remaining credit card customers.
New York Times:
In their defense, banking officials say they have no choice but to raise rates and limit credit. Because of the new rules and the prolonged economic malaise, they say it is now far riskier to issue credit cards than it was just a few years ago.
“We sell credit; we don’t sell sweaters,” said Kenneth J. Clayton, senior vice president for card policy at the American Bankers Association. “The only way to manage your return is through the price of the product or the availability.”
The nation’s largest banks are scrambling to figure out a new business model that fits within the new rules and current economic conditions. Those banks made handsome profits over the last decade by charging high interest rates and penalty fees to a small group of customers who routinely paid late or exceeded their balances.
Already, banks are shifting to a model in which a smaller pool of Americans will be eligible for credit cards, and customers with cards will probably pay more for the privilege through annual fees and higher interest.
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