Did you notice your mailbox had slightly less junk mail lately? Fewer credit card offers with tighter terms? And the mail you get is a little scarier? Rates and fees going up, while credit lines are going down? Blame the credit crunch.
The Wall Street Journal reported today that credit offers by direct mail are down about 16% over 2007. (They’re still at 650 million mailings as of November, so don’t get too excited about the end of junk mail as you know it!) The banks are beginning to focus more on pushing cards to their existing customers. But the approval rates for new accounts has declined from about 40% to 32%.
They have also begun raising their fees and lowering the available credit outstanding. The banks are watching their customers more closely for any signs of real or potential distress and trying to cut off the bank’s risk of loss earlier.
So American Express is reported in the WSJ piece to be limiting account holders’ ability to carry a balance on their One cards and so on. The already-outlandish $39 late fee will almost certainly go up this year on most accounts, as will overlimit and other sources of fee income for the banks.
Most interestingly, it appears the banks are beginning to cut available credit lines out to consumers. On any individual account, that may limit the bank’s exposure to default. But to the extent that consumers are relying on credit to get them through the recession-that-isn’t-(yet), it may increase the overall likelihood of default and non-payment for all the consumer’s obligations.
It also speeds the decline of the consumer’s credit score (as the percentage of available credit used goes up, the score tends to go down) so the consumer becomes less likely to be able to refinance their way out of the problem.
Ironically, the Journal’s solution is to have more cards with high available credit lines in order to minimize the impact on your score and to be able to switch to “better” deals if one bank gets too tight-fisted. Which of course begs the question: How do consumers who are facing stingier lenders get more credit in order to protect their scores and credit needs from…wait, the stingy lenders.
It may just turn out — call me crazy — that relying on credit to help you make ends meet is becoming a whole lot more dangerous as the current credit crunch evolves, grows, and consumes American consumers. It’s going to be a brave new world.
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