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Perhaps if I were in the top .07% my credit limits would not have been cut!?!?

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April 18, 2010 – Comments (22) | RELATED TICKERS: BA , NKS

I hate banks! Here's one small part of the reason why:

I was recently sent letters by two of the banks that I have credit cards from. One of them informed me that because I "haven't used (my) Platinum Edition Visa Card in some time" they were "adding a low annual fee of $75 to (my) account". The other letter informed me that "due to the inactivity on your Account and other credit data, we have made the difficult decision to decrease the credit limit on your account." My credit limit was slashed by 60%.

Both letters stated that their "decision was based in whole or in part on information provided by a consumer-reporting agency". Hmm, that's interesting. Let's take a look at the facts here:

1. I have NEVER missed a payment! Never...on anything!

2. I have NEVER EVEN BEEN LATE on a payment!!! I am one of those sick people who actually enjoy tracking my spending, budgeting and paying bills early.

3. My income has increased every year since I first began working.

4. My wife and I have paid off huge amounts of debt over the last 10 years - $40,000 worth of student loans, $30,000 in mortgage principle, and a $20,000 home equity line of credit. Though we use credit cards in order to earn points/rebates, we ALWAYS pay off the balance in full every month and, therefore, NEVER carry a balance.

5. All of this has led to a sterling credit score. In fact, I went online to check it shortly after I received these two letters. To be exact, my credit score ranks me above 99.92% of consumers. That's right, when it comes to credit there are only (approximately) 200,000 people in the entire country with a better credit score (assuming that there are about 250,000,000 people in this country with a credit score).

Based on this information, these two banks thought it would be prudent to lose me as a customer (I immediately cancelled the cared that wanted to charge me a fee) and cut my credit line by 60%.

These were the same banks that couldn't raise my credit limit fast enough from 2000-2008. At one point in time, I could have rung up charges on my credit cards that were equal to 3X my annual income!

In the end, I don't really care that I had to close one account and had my credit limit reduced on the other. I still have a scary amount of credit at my disposal. I realize these decisions were made more from the fact that I had not used these cards in a long time. It just makes me wonder...if they're adding fees and reducing credit to someone who ranks in the top .08%, what are they doing to everyone else? And these actions are somehow supposed to spur consumer spending...when 10% of the country is unemployed...and another 10-15% are underemployed??? That sounds about right! Doesn't it?!?

22 Comments – Post Your Own

#1) On April 18, 2010 at 11:14 PM, ChrisGraley (30.30) wrote:

Cut up your cards and stop borrowing money. Anyone bragging about their credit score is bragging about being a perpetual debtor. If you were as well off as you think you are, you wouldn't need the cards. A credit score would be more accurate if it was called  a moron score. I know all the arguments. You get miles or you get rewards, but you still get less than they get. If you didn't, they would be in no position to give those things to you.

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#2) On April 18, 2010 at 11:26 PM, JGus (28.90) wrote:

Chris - I'd agree with you if I ever paid anything in the way of credit card fees and/or interest charges. I don't. That's why I immediately cancelled the card that was going to start charging a fee. The banks DO get more from most people that they issue cards to, but not me.

By the way, I'm a big fan of your blogs!

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#3) On April 18, 2010 at 11:40 PM, allwayssummer (< 20) wrote:

Join a credit union. I left BAC for BECU years ago and will never go back, also I have my credit card through Schwab, get 2% cash back (I pay it off every month) and no bank BS.

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#4) On April 18, 2010 at 11:44 PM, Option1307 (29.97) wrote:

If you were as well off as you think you are, you wouldn't need the cards.

I'm going to have to respectfully disagree here Chris. I hate the big banks about as much as anybody, but I see nothing wrong with using CC as long as you pay off your balance in full monthly and don't have to pay fees etc. In fact, I'd say that I'm screwing the banks by doing just this. They have to pay me things, albeit very minimal, cash back/miles/etc. and they don't get a dime from me. I win JPMorgan, ha, no soup for you!

But, I realize I am the small minority that can/does do this. Most people use CC as a form of debt and I agree with you here, this is a bad habit and can quickly lead to financial ruin.

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#5) On April 19, 2010 at 12:11 AM, JGus (28.90) wrote:

Chris - one more thing - you kinda missed my main point. The real questions/concerns for me were summed up in the last paragraph. We have been led to believe that the consumer is roaring back to life. I wonder how this could possibly be true. A lot of people I know live check-to-check and depend on credit to make ends meet. I wonder how many of the 20-25% who are unemployed or underemployed have been relying on credit to get by. If the banks are raising fees and/or cutting off credit to prime borrowers, then they must also be doing so to anyone who is living check-to-check or is living off unemployment. How can this equation possibly lead to increased consumer spending?

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#6) On April 19, 2010 at 12:46 AM, memoandstitch (< 20) wrote:

Strange.  One of my least-frequently used cards just offered me bonus points if I start using it a lot. 

If you are not using those cards anyway, you can just tell them, "I don't care."

I have to disagree with Chris here.  Credit card is still the best payment method for online transactions.

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#7) On April 19, 2010 at 12:53 AM, starpark88 (84.96) wrote:

how many cards do you have? If by canceling the two, you lost some old accounts and most of your credit line your score might go drop precipitously and any new cards would be at higher rates or fees. I had a similar situation and just looked for a new card before cancelling the old one. Worked out fine. 

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#8) On April 19, 2010 at 1:40 AM, binve (< 20) wrote:

Hey JGus! LOL! I had a similar situation occur to me (lowering of my credit limit based on inactivity) and my credit score is also very high. It's not like it really affects me, I just found it amusing. Thanks man!..

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#9) On April 19, 2010 at 2:17 AM, whereaminow (46.24) wrote:

Chris is 100% right, and even though you are an excellent trustee of money, that is not what the banks want.  The perfect customer for them is someone who always pays back the money just a little bit late.

I'm with Chris though. I use debit cards only.  If I have to make a big purchase I just call the bank and let them know.  If they give me grief I remind them that I can just close the account instead if they prefer.  They never chose that option.

No debt = freedom.

David in Qatar

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#10) On April 19, 2010 at 2:48 AM, TMFUltraLong (99.96) wrote:

I'm a disgruntled credit card holder as well, albeit having a shorter credit history I would imagine. My cards have been held for 6-10 years, never a late payment and always significantly below the limit. Every card except for one is paid in full monthly and the other is naturally at 0% interest... I see interest as the ultimate evil. I too experienced the "we're sorry but we're taking your nice low fixed rate that you've enjoyed for 7 years and floating it at a variable rate which is double what your rate is now"... they are bastards! I've responded by using that card monthly and putting $15 or so on it. Enough use that they wont close it so I can reap the good payment history rewards, but using it only once so they can reap only 45 cents or so of benefits from my usage. Bastards I say...

UltraLong

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#11) On April 19, 2010 at 3:15 AM, ralphmachio (23.92) wrote:

Platinum, Ha! Mine's black. 

...Just kidding, I don't even bother checking my credit rating!

Anyway's, what's the point of impressing whores with good credit? I'll never, for the life of me, understand why anyone respects the credit card companies. They raised my rates, I paid my balance, and cut those sucka's loose. Now, I don't buy anything unless I can afford it, what a novel idea. If enough people cut them loose, they would have to become competitive.

I am more against them making money than I am of me losing it to them. The more they make, the more they create new ways to take. I would rent forever sooner than pay some sleezeball in a suit 3 times the value of my home, and be locked into servitude for 20+ years, and they never had the 'money' to begin with! 

 

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#12) On April 19, 2010 at 3:58 AM, investomania (84.55) wrote:

The Banks cut your credit limit precisely because you don't use it.

If you have a $30,000 credit limit, that $30K represents a potential loss to the bank (in that you could run up charges to the limit, then fail to pay the card.) Which means the bank must hold some assets in reserve to cover that potential liability, even though you don't use the card so will not actually generate profits for the bank.

Here, in the great deleveraging, the banks ceases to see you as a potential source of profit (transaction fees to vendors and credit fees to you when you don't pay the entire balance each month). They now see you as a source of loss (credit card default) and as a drain on the reserve asset base they need for activity that more reliably produces bank profits.

 

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#13) On April 19, 2010 at 7:32 AM, devoish (99.10) wrote:

JGus,

Your freebies are drying up because the money your bank used to get from retroactive fees and increasing interest rates on existing balances (stealing) charged to people with poor credit is no longer available to finance them.

From two TmfEldrehad blogs, see the comments in the first one.

http://caps.fool.com/Blogs/ViewPost.aspx?bpid=198440&t=01004277408378353444

http://caps.fool.com/Blogs/ViewPost.aspx?bpid=198651&t=01004277408378353444

And my solution to your issue.

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#14) On April 19, 2010 at 9:15 AM, ChrisGraley (30.30) wrote:

I should not have made assumptions JGUS. Cards are fine if you have the foritude to use them As you do, but I suspect the banks will close those loopholes.

As far as online purchases go, use a debit card.

As far as JGus credit score dropping, it will drop slightly and temporarily for canceling the cards.

As far as this effecting the market, your exactly right, but I think that overall it's a good thing. Too much debt got us in this mess to begin with.

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#15) On April 19, 2010 at 9:37 AM, catoismymotor (36.11) wrote:

# 1 - Well put. When people start focusing on their retirement and savings accounts as they currently do their credit scores we'll be far better off.

 

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#16) On April 19, 2010 at 10:27 AM, loangolfer (< 20) wrote:

For what it's worth the same guys that run the bank, run the credit agencies. What a surprise! The origin was about how banks could tell each other who was a "good" customer & who wasn't without violating trust issues.

They are all about profit. They probably get a good laugh out of people that work to get a good credit score. At the end of the day they always make their nickel,dime,quater at your expense. 

That's why they are the bank!

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#17) On April 19, 2010 at 11:16 AM, kdakota630 (29.86) wrote:

This blog was a great read, as were the majority of the replies.

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#18) On April 19, 2010 at 11:39 AM, PDTBiotech (93.01) wrote:

I hope this doesn't result in an old fashioned tarring and feathering, but surely some of the people in this thread other than myself own some stock in at least one CC company.  I personally despise the business and only have one card which I will never, ever pay any sort of fee to use, but do own some shares (same with RE) as I think it's too good a racket not to be a part of.  Which I guess makes me part of the "they" that keeps getting mentioned as villains above.

JGus, it sounds like they (er, "we", although I don't own V) got the wrong guy, but I am glad to see CCs cutting credit limits.  Hopefully it's just a sign that there's a systemic change going on, and they did this to everybody.  Mine was insane before all of this, I went back and looked at my statements and they had been bumping my limit 15% annually for at least 5 years.  I had a stretch of 7 months of unemployment at the start of 2008, but they still raised it towards the end of that stretch, which was obviously absurd.  Last year I was cut to what I consider a useful but safe number for me, and it hasn't budged since.

The $75 fee doesn't surprise me, I read a great article last year on how with credit regulation tightening CCs will have to start finding ways to pull revenue from customers who used to be free (Portfolio possibly, before it went under), and have been watching my card for any such shenanigans.  One penny in charges and it's gone.

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#19) On April 19, 2010 at 12:13 PM, lemoneater (79.26) wrote:

JGus, Rejection is never fun. But try to be objective, why should the credit card company want your business when they hardly make anything off of you? If it makes you feel any better, my family has gotten similar "Dear John" letters from our card company.

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#20) On April 19, 2010 at 12:26 PM, leohaas (36.25) wrote:

This is just the way it is in the banking world. Because you always pay in full and on time, you are not a good customer. Banks prefer customers with balances (for the interest income) and those who pay late occasionally (for the fee income).

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#21) On April 19, 2010 at 12:40 PM, JGus (28.90) wrote:

lemoneater - I'm actually not that upset. The justification in their letters made me laugh a little bit. In some ways, I'm surprised it didn't happen sooner. As a number of you pointed out, I am not a good CC customer for the banks. I actually wish that they would just be honest and say, "We're not making any money off of you, so we've decided to close out your account."

That being said, I can completely understand how one would think that I am upset given my opening statement about hating banks. This is a very small and rather insignificant part of the reason for my hatred. I have blogged in the past about some of the more important factors in why I don't like banks. Binve sums up my thoughts beautifully - "Banks are like a cancer on our economy!"

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#22) On April 19, 2010 at 1:46 PM, lemoneater (79.26) wrote:

JGus, "I wish they would just be honest..." That phrase right there sums up how I feel about a lot of banks. Many of us identify with your frustration. My father-in-law got really upset when he was told that his rates would be jacked up. I guess his credit was too good! 

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