More Basic Credit Card Reasons For Card Cancellations and Limit Reductions

It is amazing how fast the credit environment has changed in the last 2 years. Everyone had become more credit savvy and understood the term and conditions of cards, annual percentage rates, FICO scores, debt to income ratios, and most things you could think of. We managed our credit cards and paid them all on time to maintain the best credit profiles as possible.


And yet all this effort seems for nothing. The banks and credit card companies are doing something unprecedented. They are taking preemptive action to eliminate risk regardless of the individual's personal situation. Across the board, they are cutting credit card limits and canceling cards because the recession dictates it. There are many stories of people getting their credit cards canceled or credit limits drastically reduced.

Federal Reserve Study Shows Banks Tightening Credit Card Approvals, Increasing Rates and Fees

The Federal Reserve issued a statement this month that essentially agrees with the findings of private studies and journalists about the state of the credit card industry. Releasing results from its quarterly survey of banks to journalists, the Federal Reserve noted that more banks rely on fees and finance charges from cardholders in good standing to offset losses from defaulted accounts.

Therefore, according to the Fed's survey results, many banks intend to increase annual fees, raise interest rates, and pursue more service charges on most credit card accounts. Some survey respondents told researchers that some of their companies' actions were prompted by pending credit card regulations. However, most bank officials responding to the Fed's request noted that credit card account changes were mostly designed to insulate lenders from the effects of a sour global economy.

Roughly one in four banks responding to the Fed's survey reported tightening their credit card approval standards in the past quarter. While that figure may sound high to casual observers, industry analysts note that a similar survey conducted in the summer of 2008 resulted in a 75% affirmative response to the same question. Lending industry observers note that this trend represents a more prudent approach to offering credit cards and setting credit limits, compared to the loose market of only a few years ago.