Wow Mike excellent post. I was just discussing this with two friends the other night. I had the same thing happen to me last month on two credit cards, on which I was never late on a payment, always paid down to zero within a few months of using it etc. and I have a credit score in the 720 range. sssssllliced my credit limit from $25,000 to less than $4,000.
I was insulted at first, but then thought well maybe it’s just a re-adjustment of outrageous credit limits issued unsolicited (i.e. we didnt ask for it) in the first place. I mean come on, does a person making $80,000 a year REALLY need a credit card with a $50,000 limit?
But you are right, what PISSES me off is my credit to debt ratio, which Suze Orman (Goddess of finance) mentioned makes up a large portion of my credit score, will be hurt by this. This is happening wide-spread. I have yet to see how it will affect my rating, how long does something like that take to trickle into your score? instantly? a few months? One statement cycle?
Perhaps a re-assessment in how the credit score is derived is in order.

I have two credit cards, both B of A, which have had numerous limit increases (not at my request) over the years, with the most recent being last October. I’m continuing to receive blank checks from both accounts pushing 0% for nine months. My credit score, last checked, is ~800.

I have never been late on a payment, I do use my cards and carry a balance (shame on me), and haven’t had any line reductions. I suppose they could cut back the lines, and my score would suffer in which case I’d just go ahead and pay it down, and tell them off (like some phone drone would care).

I have heard about this happening..Of course they chop the credit limit long before they send out the letter..

Sad sign of the times..the borrowers who defaulted and didn’t pay as agreed are screwing the people with excellent credit..

While not about real estate, it is about real estate. The cheap easy credit of yesteryear fueled real estate values just like the cheap easy credit fueled car prices, consumer goods, flat screens, etc. I, too, have a Wells HELOC that has $0 balance on my rental property, and yes, it’s still good to be drawn on. Current rate is 3.75% if I had a balance, I think. Never carry a balance on my Chase Visa. Have 750+ credit.

Yes, I expect Wells to yank mine at some point and Chase to dial back at some point. Just like where real estate lending has been over the past months - deleveraging. Gone are the cheap easy credit days, and so too this credit fueled asset bubble.

Methinks I’m going right now to their website and pulling $25K out to buy an investment where I’ll return more than 3.75%…. thanks for the reminder! (don’t do it…)

Citibank is hardly the only bank doing this. BofA, Chase, HSBC, CapOne and many others are also cutting back on credit limits or even outright canceling credit cards - even for those with super high credit scores. Additionally, some banks/lenders are paying people to close unused HELOCs - as the bank can’t just unilaterally close a HELOC like it can a credit card.

The days of easy and plentiful credit have come and gone for now. Unfortunately, on a personal level, that dramatically cuts into the nice extra income from arbitrage I’ve had in the past.

“… potential rates needs to be changed and not entirely in the hands of these companies.”

As much as I think credit rates and terms are being abused by credit card companies, there is only *one* entity that should set the rates and terms … and that *is* the lender.

Don’t like the rates or the terms? Find a different creditor.

These kind of regulatory controls almost never work. I’ll take expensive but plentiful over cheap but scarce, every time.

This happened to me a few months ago. I have a loan that I’m using to pay off some debt that I have incurred and I got an email from Bofa informing me that they were closing the loan. Talk about hurting your credit. It basically raised my debt ratio to over 100%. Thanks BofA, now I’m stuck paying off your high interest loan and my FICO is in the toilet.

WOW!!!! You too? My Barclays and HSBC have lowered my limits, involuntarily about 40% of my original credit limit AND raised my APR up to 20 % from 7.5 %. Per Susie Orman this is a unvoluntary credit decrease which will LOWER my FICO score by 30 %. This is INSANITY. I have NEVER been late, NEVER passed my balance, have great credit, and am employed. According to their customer service representatives in BOMBAY India, its due to “your failing economy”.

THIS IS AN OUTRAGE! But heres the greater question. What can I do about it?

This is an OUTRAGE!!

I fought Citi on this. Got to the supervisor, and the supervisor’s supervisor. The bottom line is that they are NOT reconsidering their decision for me or anyone else, and the ABSOLUTELY will not even look at increasing credit card limits.

So the banks place a lot of weight on our FICO scores when considering our fitness for a loan / refinancing, then reduce our scores in the guise of of meeting our “expense management needs”, reducing out ability to refinance. Cool.

What are you going to do? FICO scores have proven to be an incredibly inaccurate indicator of financial soundness, based on the Alt-A and Option ARM meltdowns. Yet the banks still judge us on our FICO scores. Do the reductions on your credit limits show up at Experion, TransUnion and Equifax? Instantly. (You are allowed to check their files on you for free once a year each.
See https://www.annualcreditreport.com/cra/index.jsp)

Remember when your good credit was about you paying your bills on time and not about some esoteric quadratic equation? Remember knowing your loan agent at the local bank by name, and them greeting you by name when you walked in the door to cash your payroll check? Remember the free toaster? I see huge potential for the local banks and credit unions to step up and fund the people they know, while the conglomerate behemoths continue to make their own lives impossible to sustain.

Slightly off topic. But since we are talking about credit and debts, I want to clear up some misconceptions about The Mortgage Debt Relief Act of 2007. This act generally allows taxpayers to exclude income from the discharge of debt on their principal residence. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualifies for the relief.

I have been involved in some discussion as what exactly is meant by the words “principal resident.”

The Mortgage Relief Act of 2007 uses the definition of qualified residence as presented in Section 121 of the Internal Revenue Code To wit: “(5) PRINCIPAL RESIDENCE- For purposes of this subsection, the term `principal residence’ has the same meaning as when used in section 121.’.

Section 121 is entitled “Exclusion of Gain from Sale of Principal Residence”

Under that section a qualified residence is “such property has been owned and used by the taxpayer as the taxpayer’s principal residence for periods aggregating 2 years or more.

RD

Mike, we need to start a revolt against FICO scores. Its possible that the FICO damage from your CITI downgrade will trigger a cascade of events. Other cards or possible HELOC could reduce their limits due to your (now) lower score, further lowering your FICO. Your car insurance cound become more expensive because of a reduced FICO (although this practice is illegal in California, its just fine for the citizens of our state.)

Paul,
good point on commercial lenders not using FICOs - we don’t consider FICO scores pretty much at all. When I underwrite a loan for an asset, I pull credit reports for the borrowing entity (LLC, LP, GP, etc) and for the ‘key’ principals of it, but this is really to see if they’ve gone BK or had other major issues in the near past. I don’t recall ever seeing any FICOs (sure they were on the reports, but who cares) and certainly have never made any decisions either way based thereon.

However, its not so much because its a ‘load of crap’ as you say, though I personally mostly agree, but more that we do NON-recourse lending. WHile home loans for the most part are recourse to borrowers, my commercial loans are all NON-recourse. If the income producting asset doesn’t work out, the borrowers can walk away from the loan (excepting fraud, etc.). Tax situations likely apply, though.

Now, local banks and other recourse lenders might care a bunch more about FICOs, but larger non-bank commercial lenders do not.

*****

Also along this topic: watch for fraud of course by running your credit score every so often. Due to a theft, I placed a 90 credit ‘hold’ or restriction with one of the 3 (they all cross-report, so you need only file with 1). I re-file every 90 days, because the theft was electronic - i.e., they could hit me years later with ease. This is inconvenient at times of borrowing, however, because removing this restriction takes time and hoops to jump thru, I think. (I have not obtained any credit in the 2.5 years since the theft occurred, so I’m not 100% certain of the process.)

So, anyone looking to buy a house or obtain any credit needs to know what’s contained in the report, regardless of the accuracy of the FICO score as a predictive index.

Credit related but not card. Just for info. Wife and I just did a refi on the house. We got 4.75% for a point down from 6%. I did the numbers and even having paid 4 years into the existing loan it still made sense to refi. The motivation wasn’t the lower payment but that’s nice too.

I wanted to wait on the Fed, hoping their spending spree would push rates further down but I had another fear, declining values. We currently sit at 40% equity based on appraisal. I was actually concerned that if we came too close to the magic 20% due to declining values we might be met with a higher interest rate or no loan at all due to lender fright or even the dreaded PMI which would make the whole thing a bust.

Something interesting was on the paperwork that said our home was identified as being in a declining market (duh) and therefore the LTV would be scrutinized. It’s been a while since our last mortgage and I have to say they are paranoid now. Everything we’ve told them has been verified where as before it seemed like they just said put your mark here.

Always good to have you check in, Perry, and thanks for the report from the trenches.

I’ve been hitting Bankrate and all the banks’ sites checking refi rates over the past couple days. The numbers are all over the place and a constantly moving target. B of A was offering me an Option ARM product yesterday (gone today). 30 year fixed rates half a point or more under 15 year fixed rates. I almost wish Angie were around again to offer me some advice!

I’ve got to agree with you that the banks are getting pretty paranoid these days. Citi called me to ask for my HELOC payment, and to inform me of the dire consequences of a late payment. OOPS, the bill arrived after the due date since they mailed it late, and I was paid up and current well within my grace period. They are gaming me - I’ve got a 2.25% rate on the balance per my last statement, and I think they are systematically looking for a way to call in the loan.

Have you seen your credit card statements arrive on weird dates with minimal notice of due dates? They are trying to trap us to rack up late fees and finance charges.

The banks might not trust us consumers these days, but is nothing like the distrust we consumers hold for our banks.

http://www.dailymail.co.uk/news/article-1110305/British-Airways-credit-card-UKs-expensive—hiking-charge-46.html

British Airways credit card is UK’s most expensive - after hiking interest charge to 46%
By Sri Carmichael
Last updated at 10:33 AM on 09th January 2009

Jet set prices: American Express’s British Airways Premium Plus card’s charges were branded ‘ridiculous’
American Expess has increased the cost of borrowing on one of its credit cards to 46 per cent — more than 30 times the Bank of England base rate.
The company now charges 46 per cent APR on the British Airways Premium Plus card, making it Britain’s most expensive credit card.
Consumer groups said the cost of borrowing on some credit cards had now lost all touch with the base rate.
A series of other cards also have APR over 35 per cent — despite interest rates now being at the lowest level since the Bank of England was set up in 1694.
Other cards include Virgin Money American Express at 37 per cent and Citi MasterCard at 41 per cent.
Consumer group Which!’s credit card expert Martyn Saville said the Amex rate was ‘ridiculous’.
He said: ‘This is over 30 times base rate.

‘Credit card interest rates now bear no resemblance to Bank rates — it is just about what companies think they can get away with.

More…Bad news for your nest-egg as the base rate drops to a record low

‘Even at 19.9 per cent it is far too high.’
The Amex rate was sent soaring from 36.6 per cent to 46 per cent because the issuer increased the annual charge paid by customers from £120 to £150.

APR calculations take into account the annual fee, prompting the vast rise.
Enlarge Four of the five cards with high APR have annual fees of up to £300. Amex said the interest charged on transactions had also risen, from 16.9 per cent to 19.9 per cent.
An Amex spokeswoman said fees had not gone up for the last seven years.
‘We”ve held off making any fee increases, however the cost of providing these products has increased.

‘Rather than reduce the benefits on offer, we’ve slightly increased the fee.
The card offers British Airways frequent travellers benefits including 1.5 Airmiles for every pound spent on the card. British Airways said the APR was a matter for Amex.

I carried a few thousand on a Chase Diamond CC for the last year and a half. They originally offered me 4.9% until the balance is paid off. So I set up automatic withdrawals to make certain I was never late.

Then last month they informed me that I would now be subject to a $10/month service charge! I called and the only way they would wave the charge was if I agreed to pay off the balance in full, which I did immediately.

However, I have not experienced a limit reduction on any credit line.

My FICO was 804 last month when I did a refi.

Stop doing business with the big banks.

Choose a large credit union for your credit cards and you won’t be mistreated like so many people are today by the banks.

Perry said, the credit card companies “[a]re trying to catch us some how and it seems like our banking economy is based on fees.”

Isn’t it society as a whole?

How about the supermarkets that advertise 10 items for $10 making you think you actually need to purchase 9 more items than you need [or want].

Or how about advertising buy one item and getting the second one for free. You think that’s equivalent to 2 items for the price of one and buy only one. Only when you get home do you discover [assuming you check your receipt] that you paid twice the price you thought you were paying.

Or how about keeping the advertised price the same as before, but reducing the size of the product [what used to be a gallon of ice cream is my personal favorite]?

Or how about packaging different size products in the same packaging [my favorite is toothpaste - the same cardboard box is used to house 6 oz, 6.2 oz and 8 oz tubes]?

I could go on and on but there’s very little morality in many of today’s business models.

I’m right there with you BB. Once I saw the first 1.75 quart container I stopped buying. Pretty much have not bought any ice cream for a few years now. Meaningless, stupid, ineffectual, sure. But I feel like they need to know someone is paying attention, we are not all clueless sheep, and maybe one day some dairy farmer will put a real half gallon back on the sheleves and I’ll reward him in what little way I can.