Why Did Bank of America Cut My Credit Limit?

Warning: You may get a Bank of America credit limit decrease for absolutely no valid reason. Today I received this letter in the mail from B of A, chopping my credit limit from over $16,000 to $8,500 on my Financial Rewards Visa Platinum card:

Dear [Someone]
Thank you for being a valued customer. We appreciate the opportunity to serve you.
We periodically review out customers’ accounts to ensure we are offering each cardholder the most appropriate credit line. In some cases, we discover we have extended customers more credit than they are likely to use or need. Given the size of your credit line and the way you have historically used your account, we have adjusted the credit line on your card to $8,500.
It’s a good idea to review your credit reports periodically. Our decision was based in part on information provided by the following credit reporting agency. You may obtain a copy of your credit report by contacting TransUnion, Consumer Relations – East P.O. Box 1000, 2 Baldwin Place, Chester, PA 19022, or you may call them at 1.800.888.4213.
If you have any questions or need assistance with your account, please call 1.800.726.5628, Monday through Friday from 8 a.m. to 5 p.m. Eastern. You may also manage your account online at www.bankofamerica.com

Again, thank you for allowing us to serve you. We look forward to continuing to meet your credit needs.

Sincerely,
Card Services

This account has been used regularly, but never carries a balance. Apparently they will only allow you to keep your high credit limit if you carry a balance (and pay them boatloads of interest).

It looks like B of A’s billions in bailout money is really loosening up the credit markets! [yeah, right]

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How To Get A Credit Card

Anxious to get your first credit card, or another credit card?

I frankly don't recommend you follow any offers you get in the mail. Instead, spend some time researching online (on web sites like Credit Card Outlaw and our excellent competitors) to find a tempting credit card offer that matches your needs EXACTLY... whether it be the most cash back for the sorts of purchases you plan to make, a nice air miles or hotel points program, or a general rewards program that fits your lifestyle.

American Express offers a number of great credit cards in my opinion, so definitely check them out. Also check out Bank of America's VISA Signature line of credit cards -- although I have many open credit card accounts right now, with a significant total line of credit on many of them, at the moment I am only using my BofA VISA Signature card... it just simplifies things.

I used to use my AmEx Clear card a lot, but haven't been using American Express as much lately -- even though their JetBlue card is super tempting!

So that's how to get a credit card, in a nutshell. Do the research online, find the best offer, and then apply on your computer. Be prepared to give the bank personal information about yourself, including your current income level. If you don't have sufficient income or are currently a student or unemployed, you may be turned down for some of the more premium/high-credit limit credit cards out there. Don't get discouraged; check out entry level cards like the Citi Platinum Select line designed especially for college students and those new to the credit game.

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Have a Chase Bank Credit Card?

If you have a Chase Bank credit card, be very, very, very careful.

If you:

• Exceed your credit line.
• Do not pay on time (even once)
• The bank believes you will be either unwilling or unable to pay because of "information they receive" (like, for instance, because your credit report discloses you didn't pay someone else?)

The bank can immediately close your account without notice AND DEMAND YOU PAY THE ENTIRE BALANCE ON THE ACCOUNT IMMEDIATELY.

Oh, and when you can't (because you thought you had time to pay) you are then in default again for not paying "on time" and they can sue and add attorneys fees and costs.

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In an ironic twist, banks now find themselves feeling pinched because of the fees associated with the bailout funds they received and they’re asking the government to reconsider those fees. According to the terms of the loans given to banks, they must be repaid with 5% interest, regardless of how long the loans are outstanding. The American Bankers Association sent a letter to the FDIC and the Treasury asking for the 5% interest expense to be lifted for banks repaying the personal loans early.

Bank customers have historically been the ones complaining about fees. Consider the following fees that have become accepted practices in banking:

ATM Fees: The cost of making cash withdrawals from an ATM machine that is not tied your bank can be substantial. Over 99% of banks charge at least some kind of fee for non-bank customers to access cash. The fee is typically $1.50, but ranges to as much as $3 with some banks. Your bank probably charges a fee on top of the fee you paid at the ATM machine, meaning that bank customers often pay more than 10% for the privilege of making a small withdrawal.

Overdraft Fees: More than 75% of banks automatically include overdraft protection on customer accounts. This means that the bank will honor checks and withdrawals even in you have insufficient funds, and then charge you a fee that is on average about $27. According to a recent study, these fees are incurred either during point of sale transactions or at ATM machines about 80% of the time. It would be easy for banks to inform the customer that they are overdrawn and that they will be expected to pay a fee if they complete the transaction, but most banks choose not to disclose that information to customers. Overdraft fees are big business and easy money for banks.

Credit Card Fees: Banks commonly charge an annual fee to each credit card holder, as well as fees for things like late payments and cash withdrawals. These fees add up and are a major concern when they come on top of interest charges and changing terms and conditions on credit cards.

You probably pay most of the above fees regularly and just consider them a cost associated with banking. These fees are steep and in many cases unfair, yet banks are rarely flexible in forgiving these fees for customers. To see banks now complaining about the fees that they’re being asked to pay to taxpayers, without whom many banks would be out of business, is ironic to say the least.

So far, there has been no response from the Treasury or the FDIC.

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Credit CARD Act implementation could lead to payday loan use

Consumers with bad credit reports may soon find themselves reliant on short-term lenders, as new laws being implemented on Monday by the Credit Card Accountability, Responsibility, and Disclosure Act of 2009 may make it harder for them to open new lines of credit.

According to a recent report by Reuters, some of the rules being put into effect on February 22 – such as new restrictions on creditors’ abilities to charge fees on rates and existing balances and a card holder’s ability to reject rate changes – could cause card companies to tighten up their lending standards.

As a result consumers with good credit scores will get priority over those with poorer credit histories who may look like more of a financial risk.

With credit offers off the table, payday loans may become a more necessary financial device for those in need of immediate cash than they intend to pay back later

Payday loans have become known as something of a double-edged sword. While able to provide up to $500 in a loan that can be processed quickly without a drawn-out credit check, failure to repay them on time can result in hefty fines that drive one further into debt.

However, if without the ability to take out any new lines of credit due to a poor financial past, many consumers may choose the risk/reward of a payday loan over more drastic measures such as pawning off belongings or choosing to fall into debt.

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'¡Carguelo a mi cuenta!' campaign redux

The predicted breakup of the love affair between Mexican credit cardholders and their issuing banks isn't happening as quickly as I thought.

It's been reported that the delinquency rate among the country's cardholders is reaching a nine-year high of 12.6 percent. That's more than double the amount of U.S. credit card delinquencies, which hit 4.3 percent in June 2009. The record high for bad credit card debt in Mexico was 12.7 percent in 1999.

"The overall line of credit used by Mexican cardholders increased from 39 percent in December 2007 to 49 percent a year later," said Pascual O'Doherty, chief analyst for the central Bank of Mexico.

And despite the huge increase in usage and delinquencies, the banks are still pushing credit cards to its citizens.

Call it eternal optimism or foolishness, but you can still get easy credit in Mexico -- even if you only bring home $240 a month (so claims the only Mexican-owned bank Banorte, which promises "the easiest life for all Mexicans"). And it's not like Mexico hasn't been hit by recession.

Mexican citizens are being urged to revive their economy by spending -- be it through credit cards or other means. And the banks appear to be confident that, despite the increase in delinquencies, that these losses are just a financial blip that can be easily absorbed by more profitable ventures. (Grupo Financiero Banorte reported around $240 million in profits from January to June 2009.)

As I reported earlier this year, interest rates on credit cards in Mexico can run anywhere from 42 percent to as high as 75 percent. And get this: ATM fees can cost up to $10 each transaction.

Not everyone wants this relationship to last. A consumer campaign is projected to launch this fall by activists protesting the high cost of credit and the increase in personal debt. From what I can determine, offering low-income citizens credit at astronomical interest rates doesn't sound like a match made in heaven.

See related: '¡Carguelo a mi cuenta!' campaign redux, Credit cards around the world: Mexico

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