Credit Card Lenders Cutting Spending Limits and Opening Financial Investigations

The Boston Globe has recently published an article, “Lenders Abruptly Cut Lines of Credit“, which discusses the recently common practice of credit lenders to cut spending limits for customers - even if they have good track records of making payments on time.

Diana Lawton, a 44-year-old freelance writer in Chelmsford, is one of those being affected by the change in credit-line policies. She said American Express Co. called her last week to say her two charge cards - one personal, one for business - had been frozen pending a “financial review.” Lawton, who had been using the personal card since 1988, said she was stunned. The company offered no explanation, according to Lawton, but told her she could apply for reinstatement by submitting two years of income tax returns, along with three months of pay stubs and bank records.

Outraged at having to undergo a 10-day investigation of her finances, Lawton canceled the cards. “I know the economy’s bad,” she said, “but this is just shocking to me.”

If you’ve been a card member for years, it would seem the credit card company would have all the information they needed regarding your financial situation.  If you make your payments to them on time - what more do they  need to know? Why ask for financial statements for theprevious two years or pay stubs for three months?  In the meantime, the accounts are frozen and unuseable - which is probably the end goal.  The more accounts they freeze, the less that COULD be charged on the accounts and puts less risk on the lenders for how much money could potentially go unpaid if/when people are unable to make payments.

Fair Isaac Corp.,  the company that calculates credit scores, said it is examining the impact that credit line reductions are having on credit scores. The results are expected to made public within a month or so, and could lead to a shift in the way scores are calculated.  Since the reduction of a credit line will cause an individual to utilize more of their available credit, it has the potential to lower your credit score.  Let’s hope a change in score calculation is in order for these instances.