American Express continues to slash credit lines (and now mine)
You have probably heard about American Express slashing credit lines with entrepreneurs, and scrutinizing people's spending patterns for reasons to start cutting credit lines.
I smirked. After all, you shouldn't finance a business on credit cards -- it is just plain stupid.
I have good credit, pay on time, and I usually don't carry a balance. It will never happen to me.
Well, today I received a letter from American Express informing me that they were slashing the credit line on my American Express One card. For those of you who don't know what the One card is -- it is a credit card bundled with an FDIC-insured savings account. You earn a 1% rebate which is deposited directly into your savings account.
I had $8k in the savings account. Amex slashed my credit line to $9,500, citing a variety of reasons including my "missing a payment" and "inability to pay," and a few other form letter excuses. I'm not a rocket scientist, but if they are holding $8k cash in deposits (which would allow them to lend out a multiple of that)...
In any event, the sheer number of complaints about abrupt credit limit decreases seems to be increasing exponentially.
For those who carry a balance, a reduction of a credit limit can cause collateral damage. Your credit utilization can jump from say 50% to 100% in no time at all, impacting your credit score. As your credit utilization increases, your credit score decreases, and other credit cards start to ratchet your other credit limits downward causing a credit death spiral.
According to one prediction, credit card companies will vaporize more than $2 trillion in credit lines over the next 18 months.
"About one in five cardholders had their credit limits reduced recently, according to a July survey by Consumer Action, a San Francisco-based consumer advocacy group. Roughly the same percentage of cardholders also reported being very close to their limit on at least one credit card, according to that survey.
Bankrate's own survey indicates fewer Americans have been affected so far -- 6 percent of respondents said their credit line was cut, up slightly from 5 percent in August." (Bankrate)
As a result, I've decided to dust off the personal and corporate debit cards, and maybe you should too.
Labels: Business
