"As a responsible lender, we continually review the credit limits offered to our cardmembers…We understand circumstances change and the credit line on your business credit card may have exceeded your current business expense management needs."
To serve my needs better, Citibank just informed me that they have reduced my credit card limit to $4800 from $31,600. Actually, they knee-capped me a month ago, and they are just getting around to notifying me. Now I never asked for the high credit limit. Over the 15 years or so that I’ve had the account, Citi just kept raising the limit. I have never carried a balance on the card, and even when the card was serving a multi-million dollar business, I don’t think I ever ran up more than $5000 in monthly charges. But I gladly paid the $50 annual fee to get AA frequent flier miles and to know that there was a safety net if I ever really needed it. I asked Citi to refund 85% of my annual fee since they had pared my credit line by 85% and was met with a stony silence. So now my business has a credit card limit less than the average new collage graduate would be offered, simply because I didn’t max out the account often enough. What were the worried about? After 15 years of conservitive use of credit, i was about top run out and charge a Hummer?
This was on my business account, but can the credit limit reduction be far behind on my personal account with Citi? Same story, I’ve had the card 15 years or more, paid it off monthly, and Citi has gradually increased my limit to over $30,000 (actually more from what they told me when I called them. I can only carry a balance up to the credit limit, but can charge anything I want to as long as I pay the overage – does Fernando take MasterCard?).
A reduction in your personal credit limit is a very serious issue. A large part of your FICO score is based on your debt balance vs. your credit limit. If Citi cuts me off, my FICO score could plunge 50 points or more. That does not make me a happy camper. And having my credit limit cut from $70,000 to $10,000 is personally insulting.
I really want to hear your stories about what the banks have done to limit or eliminate your HELOCs. A year and a half ago, Citi basically begged me to take a $150,000 HELOC, Prime -1% interest only for 10 years with a Prime -1.5% rate for the first 6 months, no doc. No fees as long as I keep the HELOC open for 3 years. About two thirds of the HELOC went to buy water rights, pay sewer fees, and to pay for infrastructure costs on my Mayberry Canyon project. Worried that Citi would cut off the HELOC, I maxed it out and invested the funds in CDs paying more than my indexed rate, which is now 2.75%. I’m afraid if I reduce the balance, my HELOC cap will be reduced, so I continue to run a high balance and minimally profit by it. Even though having the debt on my head makes me pace at night.
This post isn’t about me or my situation. What about you? What have the banks been doing to your HELOCs? Have you seen your credit card accounts, terms and limits suddenly change? If you are like me, having your credit limit slashed 85% is a wake-up call to the new banking paradigm.
DowntownMakeoverDude
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.
Reno Ignoramus
Hey Mike, I have a sort of reverse story. I have had a HELOC on my house for many years. I have carried a $20K balance for the past year or so because, like you, I didn’t want Wells to cancel it for nonuse. At current rates, my monthly interest payment is about $50.
About every other month, when I get my statement in the mail, included are some checks for me to use to borrow some more money. Accompanying these checks are always some nice pictures of cute families sharing a tender moment over their new granite counters, or of a somewhat older couple gazing out from the Lido Deck on a wonderful cruise to somewhere.
What with all the credit contraction and all, I wondered if perhaps last month’s supply of checks might have been a mistake by the Wells computer. I wondered if I really could borrow more money on the HELOC in these credit frozen times. So I decided, last week, to venture down to my friendly local Wells branch to chat up the branch honcho.
I was advised that yes, my HELOC is still in force and effect. And yes, I could still, that very day if I so desired, borrow more money. How much I inquired. I was told that right then and there I could have a cashiers check for $400K if I wanted. And, if that was not enough, an increase in the line was available. As I left, without taking up Wells on the offer, I thought to myself: no shit?
I, like you, enjoy the ability to borrow $400K in an hour, but really don’t want to. Yes, for most of the past couple decades, the ability to borrow $400K at 2.5% would have been quite appealing. But now? I suppose I could try to arbitrage it by finding some CDs somewhere paying 2.75%, but what’s the point?
I only have two credit cards, and I pay each off every month. So far, Iv’e had no reduction in my limits.
As I have said many times on this blog, I am just an ignoramus, and I don’t claim to understand how credit works. But do you think I should take Wells up on the offer and go buy a Montage condo?
BanteringBear
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).
MikeZ
785 FICO. Two credit cards, $5,000 and $7,500, no balance on either and neither issuer would give me another dime of credit last month.
Even Wal*Mart and Sams turned my requests down. I haven’t seen any reductions in limits.
inclinejj
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..
DowntownMakeoverDude
Wow Bantering Bear credit score of 800? That’s awesome. Says a lot about how you live your life.
CommercialLender
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…)
Reno Ignoramus
Was it Mark Twain who said that a banker is a person who will loan you an umbrella when the sun is shining and then takes it back when it starts to rain?
Drive by Poster
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.
NewInTown
This is pretty typical of many credit cards and I agree that however they figure out the credit score and potential rates needs to be changed and not entirely in the hands of these companies. It should be based on the amount of time you paid your bills, maybe amount paid, punctuality, and I would think they would encourage you to pay off your bill (particularly if they are charging a monthly service fee). I never really had much faith in the lending process. When I went to buy a condo and was out of work, I had to go to a special mortgage broker eliminating any competition and my credit rating had little to no impact on the rate I was giving which was really high (don’t recall specific rate but it was around 10%). Noone wanted to lend to me no matter what my down payment was going to be.
MikeZ
“… 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.
billddrummer
I don’t have any credit, or bank accounts, or investments, or real estate, or savings.
I live out of my wallet.
PaulC1978
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.
BanteringBear
As far as FICO scores go, waaaay too much emphasis has been placed on them as a measure of who is credit worthy, and who isn’t. I have a score higher than that of certain others I know who are FAR more financially stable than I. This is becoming all too clear as foreclosures make their way through Alt-A and Prime loans. There are bound to be vast changes in the way borrowers are scored in the future as things continue to unfold.
GinoinSF
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?
downtownjunkie
Either way you are screwed. If you max out your credit-your score drops. If you pay-lenders will lower your limit-and your score will drop.
Haha.
GinoinSF
This is an OUTRAGE!!
NewInTown
If they want to put the score in the hands of the lender then I would like to know when I go to get a credit card if it is going to help my score, hurt it, or have no effect on it.
Many young borrowers do not have the time to mess around with lenders who are selling them junk. Why waste your time with a loan that has zero impact or a negative impact. Maybe this will kick them in their proverbial b*tts.
GreenNV
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.
BanteringBear
I’m very much in favor of all of the corporate conglomerate behemoths going out of business. I’d love nothing more than to see B of A, Wells, and Citi bite the big one. Also, Wal-Mart, Starbucks, McDonalds, can kiss off. I’m absolutely sick of these huge corporations making it next to impossible for the little guy to get a leg up. The current credit crisis is showing how vulnerable they are when they don’t have access to huge piles of borrowed cash.
Here in WA, there was a story of a young woman entrepreneur who had a small coffee cart and was looking to lease space, only to be turned down because Starbucks had some sort of contract banning competition within a certain radius of their store. I can’t remember the end result, but they got real bad press because of it. These heavyweights “kneecap” (thanks GreenNV) the competition before they can even get started.
RenoDude
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
Paul
Bantering Bear makes an important point. FICO scores are a very poor indicator or creditworthiness. They dont measure income, assets, net worth or liquidity. I have a credit card (VISA) that I never use. I prefer to charge everything on my American Express, collect the airline points and, as required, pay the entire balance within 25 days of the bill date. I was told by a reputable mortgage broker that I could improve my FICO score if I maintained a small balance on my VISA.
So in other words because I use AMEX and pay the balance in full each month my credit is worse than someone who maintains a small carry-over balance on their credit card and accrues an interest charge. This is absolutely insane. I suspect that the FICO model more accurately predicts customer profitability than financial responsibility.
Commercial Lender may have to back me up on this point, but I learned when refinancing a commercial property in CA several years ago that most commercial banks consider FICO scores a load of crap and thus do their own analysis of consumer credit reports on prospective borrowers.
Paul
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.)
Sully
Experion, TransUnion and Equifax let you make statements in regards to lowering credit scores.
Why not make a statement to the effect that the reduction in credit line was due to financial problems on part of the issuer, not yourself.
At least this will show that you are aware and
don’t like being messed with.
The banks all know whats going on anyway. Its another way for them to get more fees or higher rates down the line.
Also, the new regulations coming online in about a year might address some of these issues and the lenders are trying to get ahead of the curve.
CommercialLender
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.
DonC
CL – good point about placing a watch on your credit scores. A month ago I just happened to run my credit report (which I do about every five years) and noticed that the previous day I had two inquiries that I hadn’t initiated. A couple of phone calls later I found my SS and DOB were out and about.
I immediately placed an extended hold on my accounts, which was a good thing because I’ve had at least 50 inquiries since then — jewelers, credit card companies, banks, and mobile phone companies. At some point I’ll need to file a victim’s statement to get rid of these but at least I don’t have any new mystery accounts.
I think there should password protection on the credit accounts. When the lender accesses the account, which they do electronically, they’d need to provide a password. Wrong password no access. That should go a long way towards eliminating a lot of this theft and it should be easy to implement. I’m not sure why it hasn’t been suggested already. Perhaps it’s harder than I think.
As for reducing helocs, I’ve heard of people doing remodels and finding, in the middle of the project, that their heloc has been reduced or eliminated. That’s not good. On the credit card side, starting six months ago credit card companies stared reducing the credit limits for people working in certain industries, particularly construction, real estate, and mortgages. Obviously it isn’t personal but that is not really consolation if you’ve been harmed by it.
Perry
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.
Grand Wazoo
DonC – any ideas on how your personal info might have leaked?
GreenNV
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.
longerwalk
http://seekingalpha.com/article/107007-the-smoking-gun-of-the-credit-crisis-fico?source=yahoo
Has a very good article on how FICO was gamed as early as 2004, and how lenders and resellers ignored it. It also, surprisingly, takes Freddie and Fannie off the front burner as agents of destruction.
inclinejj
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.
DonC
Grand Wazoo – I think it was an employee of a financial institution or government. I say this only because a few details were incorrect. For example the drivers license was off by one digit. And they mangled my wife’s name. Seemed like the errors you might make if you had to quickly write down the info.
Government or financial institutions are the only places I know of where they keep this type of info. Maybe the government employee because they don’t seem to have any financial account information.
At the end of the day it really doesn’t matter. I think my point is that given the exploding nature of this type of crime it’s only a matter of time before you or a family member are targeted. Best to protect yourself as best you can.
EYESWIDEOPEN
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.
Dan
Just chop up the credit cards! If you’ve used 5,000 max, just set up a 5,000 emergency fund to cover the need for credit card. Mileage points are rarely worth it, Especially if you consider you spend 18% more w/ credit than cash.
Benton
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
With regard to the credit card due dates, my wife got so angry with ours. Like most people we have a rewards card. They started sending the statement so close to the due date you couldn’t hardly turn the bill around to them. We don’t want to pay interest or the rewards aren’t really rewards so my wife set up an on line transfer so we pay the bill that way now.
I agree they’re trying to catch us some how and it seems like our banking economy is based on fees. Late fee, over draft fee, over the limit fee, out of system atm fee, to name a few.
smarten
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.
BanteringBear
“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]?”
That one really chapped my hide. My response was to stop buying ice cream. Don’t need it. I haven’t had it in what seems like 6 months. Boy are those dairy farmers hurting now, BTW. I can almost hear the squealing.
tallguy
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.
longerwalk
Just make sure to hit the right person. Likely the dairy farmer isn’t entirely at fault–try the packing company.
It’s just like people blame the IRS for the tax law–it’s your Congress People who make the law. (Though I freely admit the IRS doesn’t exactly have its act together–but then again, ever seen the laws that Congress actually writes??? Yi.)