Credit card firms are tightening the screws on the amount of credit being offered to their customers by slashing borrowing limits in an attempt to protect themselves from the growing number of debtors.
Since the credit crunch over the summer months, credit card companies have been continually upping their interest rates whilst growing increasingly frugal with their lending limits so even those who have had historically good repayment records are being affected, despite the card companies claiming that they have not altered their lending habits in any way.
However, this is being disputed by credit reference agencies who have reported a reduction on the amount of credit card applications being accepted and a definite lowering of credit limits. This has prompted a warning to card holders that they risk a substantial cut in their credit limits if they are not regarded as a profitable customer by the card company.
"Most lenders are scrutinising customers' credit reports ever more closely and on a more frequent basis. Lenders are under pressure to avoid lending to people who can't afford to repay." says James Jones, the Consumer Education Manager for the information services company, Experian.
As the credit crunch continues, finance companies are finding it harder to borrow from each other causing consumers to complain about their credit limits being slashed. In some cases, consumers are even being offered pointlessly low amounts of credit. Joy Tibbs from Bristol found that she was only offered a credit limit of £500 despite having a good credit rating and a previous limit of £7,800 on another card.
Furthermore, with 125 fee and rate increases in the past two months alone coupled with the dramatic increase in credit card application rejections in the past six months, customers are being put off applying for credit. The UK’s largest credit card firm, Barclaycard, has already rejected over half of all new applicants and reduced credit limits for half a million customers since the start of 2006.
Esther James, Credit Card Analyst at Moneyfacts.co.uk comments: “It seems as if the credit crunch is beginning to cause credit card chaos. 125 fee and rate increases inside two months is quite staggering. With the majority of increases staying away from the headline purchase rates, these fee and rate increases are less in the public view, and often tucked away in lengthy terms and conditions. However they can still make a substantial increase to the cost of using your card.”
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