Credit card issuers are tightening their rules
By Michelle Singletary
The election may be over, but having a new president won't put an end to the recessionary issues affecting this economy.
Just consider the recent Federal Reserve report that found lending is tight and is probably going to get tighter.
About 85 percent of domestic banks — up substantially from 60 percent in July — reported having tougher lending standards for large and middle-market business loans, according to the Federal Reserve's "Senior Loan Officer Opinion Survey on Bank Lending Practices." About 75 percent of banks had tightened their lending standards for small firms over the same period.
As for consumers, don't count on swiping those credit cards as much. Nearly 60 percent of banks responding to the Fed survey said they had strengthened standards for existing credit card customers. And about 60 percent of bank respondents reported cutbacks on credit card accounts granted to customers who did not meet their credit-scoring thresholds.
You would expect the banks to be cutting or lowering credit to nonprime borrowers or those at risk of not paying their bills, as 60 percent of institutions reported. But 20 percent of all domestic banks reported having reduced credit limits on existing credit card accounts to prime borrowers.
Half of domestic banks indicated that they had become either somewhat or much less willing over the past three months to make consumer installment loans.
While the banks are reducing their risk, as a credit user you too should be proactive. The challenge is to manage what credit you have left.
The repercussions of a lower limit can trigger a reduction in your credit score. That's because if you continue charging and you aren't aware that your limit has dropped, you may max out your credit card or go over your credit limit. Those two incidents factor negatively on your credit score.
Here's what you need to do to make sure the tightening lending standards don't erode your good credit standing or further damage an already troubled credit history:
The credit-scoring algorithm looks at the credit utilization rate for each active account and, separately, a person's credit usage for several accounts together. So let's say you have four active credit cards, each with a credit limit of $5,000. Three of the cards have zero balances. The fourth card has an outstanding balance of $4,000, which means you have an 80 percent credit utilization rate on that card. Being that close to maxing out on just this one card will hurt your credit score.
However, your overall utilization for all four cards is just 20 percent, which is good.
Michelle Singletary writes for The Washington Post. Her e-mail address is singletarym@washpost.com.
