A friend called me up recently and said “OK, Ms. Personal Finance, what are these people doing? I have been paying down my credit card balance, but all the card company keeps doing is reducing my available credit.” I said, “Welcome to the new credit card world, if you can, you should try to find a new card company. Not only is the practice inconvenient, but it may even be hurting your credit score.”
The credit card companies are attempting to make as much hay as they can while the sun shines. They are scrambling to ensure they can eke out the maximum revenues possible from you, their “clients” before the new credit card reform goes into action full-force.
As I was doing some research to help my friend find a new card company, I stumbled upon Rob Lieber’s article in the New York Times “It May be Time to Find a New Credit Card” and since I agreed with him for the most part, I’ll let you read it yourself, via a link at the bottom of this article.
I do believe that this moment in our economic life, gives us the space to put better financial practices into place. One practice I would definitely suggest is reducing the grip of credit cards.
Folks who are considered “good credit card customers” by the credit card companies, are generally folks who have “bad credit card practices,” they make late payments, go over their credit limit, pay minimum balances – all the things that provide lots of revenues for the card companies. Yet, the card companies are clamping down on both good and bad customers alike. For instance, they are reducing the available credit on cards and they are closing down cards that you use infrequently. They are also hiking up your interest rates – putting into effect that “universal clause” that allows them to hike the rate on your credit card, even if you have never missed a payment on that card. The universal clause allows the card companies to raise your interest rate, if you are late on any other bill that is reported to a credit reporting agency. Sneaky, huh!
So why are the card companies clamping down on these people? Well, in a good economic climate, these folks would keep on paying their minimum payments, their late fees, their over the limit fees etc., while the credit card companies continued raking in big bucks, but in a more murky economic climate, there is a real possibility and lets say probability that many of these users may not be able to continue paying these extra charges, because with fewer dollars all around, who can keep up this practice long term. The card companies certainly do not want to be left holding the bag. Even for folks who do not abuse credit cards, by necessity, credit cards may become more of a life-line and less of a convenience, until this meager period passes on.
So lets get back to basics. Make a plan to get out of the grip of those credit cards. Pay those balances down, but also think about which card company you want to do business with. Make these changes work for you.
Ron Lieber's article: It May be Time to Find a New Credit Card.
