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Loan officers’ survey: Credit card lending standards tighten sharply

Daniel Ray

Credit card issuers tightened lending standards sharply in July, hiking rates, slashing credit limits and getting generally stingier about how they issue cards, according to a Federal Reserve survey released Monday afternoon.

“About 65 percent of domestic banks — up notably from about 30 percent in the April survey — indicated that they had tightened their lending standards on credit card loans over the past three months, and about the same fraction of respondents — up from roughly 45 percent in the April survey — reported having tightened standards on consumer loans other than credit card loans,” according to the Fed’s quarterly survey of senior loan officers.

Substantial numbers of loan officers report their banks have become squeamish about issuing cards and have tightened credit card standards by:

  • Increasing interest rates.
  • Cutting credit limits.
  • Requiring higher minimum credit scores.
  • Tightening terms and conditions on new or existing customers.

In addition, “…Large net fractions of banks noted that they had lowered credit limits on credit card accounts over the past three months and increased interest rate spreads on consumer loans other than credit card loans. On balance, about 35 percent of domestic banks — up from roughly 25 percent in the April survey — expressed a diminished willingness to make consumer installment loans relative to three months earlier.”

Percentage of banks that say they have in the past 3 months … %
Tightened standards for approving credit card applications. 67
Tightened terms and conditions on new or existing cardholders 47
Increased credit card rates 37
Increased minimum credit card payments 10
Increased minimum required credit score to get a card 57
— Source: Federal Reserve quarterly Survey of Senior Loan Officers, July 2008

Card issuers began tightening standards in January, when 10 percent reported some form of credit tightening. The pace picked up in April, tripling to 30 percent, before doubling once more in July. The Fed report confirms multiple studies that previously had suggested a sharp cutback in credit card offer by mail.

It isn’t over, either: “Regarding credit card loans, about 60 percent of domestic respondents indicated that they expected their banks to tighten standards on these loans in the second half of 2008, and about 35 percent, on balance, thought that their banks would tighten such standards on these loans in the first half of 2009,” according to the new July report.

The changes mean that it’s more important than ever for an existing credit cardholder to keep his or her nose clean by paying bills on time, paying more than the minimum and keeping credit balances — on individual cards and in aggregate — below 30 percent of available credit. Realize that any credit missteps are more likely to be punished, swiftly.

Those who have bad credit or are looking to establish credit have to face the fact that terms will be worse than they were at the start of the year.

credit_card_loans.jpgEven those with good credit may see their limits trimmed or rates raised. People in that boat should comparison shop, but wisely. (Of course, the folks on the business side of CreditCards.com would like you to do that comparison shopping here.)

Wise card shopping means quick card shopping — credit score forumulas recognize bursts of applications for what they are — shopping. Stretched-out card shopping, where you apply for one card after another, is seen as an act of desperation and will take points off on your credit score, making matters worse.

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  • My credit card company have not reduced my credit limits but they have increased the interest rates.
    Its happening everywhere in the world, we need to use our credit cards wisely now or we will get burned.

  • Patsy V Grimes

    ==If banks want business, it would seem I am the kind of customer they would want. Although I use
    them a lot aften carry a large balance, I never
    miss payments, always pay a lot more than the
    the minimum, and pay off quickly( I may reborrow but they get their money back fast.
    What is a bank for if they aren’t going to continue banking, if they raise my rates , I’ll\
    just go back to old fashioned cash and they can keep their money for the ones that they may never see it back,

  • Bill Zajac

    Banks may be getting around their obligation to prior low interest “life of the loan” offers by changing the formula for minimum payment. Chase has gone from a 2% minimum to 5%. The result: my $265 minimum payment is now $641 and I can’t afford that , so the debt will go somewhere else and Chase will be relieved from its low interest commitment. Where’s the bank regulation now?