Credit Cards Are Playing Hard To Get

The credit crunch is starting to hit consumers where it hurts-in their wallets. As lenders tighten credit standards, many consumers have faced greater difficulty getting a mortgage or a home-equity loan or line of credit. Now, some are beginning to feel the squeeze on their credit cards, despite the dramatic cuts the Federal Reserve.

Amid rising losses, credit-card issuers are tightening standards. Here's how to avoid getting squeezed:

• Boost your credit score, as issuers are raising minimum score requirements.
• Aim to pay down balances and limit applications for new credit cards.
• Maintain several cards with high limits, so if one issuer raises fees, you have other options.

Big card issuers such as Citigroup Inc. are requiring higher credit scores before issuing new cards, particularly in states that have been hit hard by the housing downturn, including California, Arizona and Florida. Some lenders, including Bank of America Corp., are offering lower initial credit lines. Other lenders, such as Capital One Financial Corp., are limiting credit-line increases or reducing credit lines for existing customers if they see signs that they are suddenly applying for more credit or are having trouble paying down their balances. And many card issuers are raising late fees and other charges to help offset what they see as higher risk.

The stricter lending standards come as many banks recently reported earnings and disclosed surprisingly large losses from their consumer businesses. Among the problems: higher credit-card delinquencies and losses. The banks expect the problems to get worse as the economy slows.

Consumers who expect to apply for a new card should take a fresh look at their credit scores and make sure that the information in their credit reports is accurate. You can order a free annual report from each of the three major credit-reporting bureaus, Experian Group Ltd., TransUnion LLC and Equifax Inc., online at AnnualCreditReport.com, or by calling 877-322-8228. If you stagger your requests for free reports throughout the year, you'll be reviewing one of your reports every four months.

To avoid dinging your score, you should pay your bills on time and aim to use less than 20% or 30% of your available credit. It's also a good idea to limit your applications for new credit cards.

One strategy: Maintain several credit cards with high credit limits – $10,000 to $20,000 or more per card is optimal. If an issuer raises fees or changes the terms, you have some flexibility and don't have to continue using those cards and can transfer your balances to another lower-rate card

Having cards with high limits can also help protect your credit score if the issuer cuts your available credit since it won't look as if you are suddenly maxing out on your credit, he says.

Excerpts taken from an article published in the Wall Street Journal February 5, 2008, written by Jane J. Kim.