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“If unemployment continues to increase, credit card net charge-offs could exceed historical norms,” Gary L. Crittenden, Citigroup’s chief financial officer.
After years of flooding Americans with credit card offers and sky-high credit lines, lenders are sharply curtailing both, just as an eroding economy squeezes consumers.
Lenders wrote off an estimated $21 billion in bad credit card loans in the first half of 2008 as more borrowers defaulted on their payments. With companies lying off tens of thousands of workers, the industry stands to lose at least another $55 billion over the next year and a half, analysts say. Currently, the total losses amount to 5.5 percent of credit card debt outstanding, and could surpass the 7.9 percent level reached after the technology bubble burst in 2001.
Lenders are shunning consumers already in debt and cutting credit limits for existing cardholders, especially those who live in areas ravaged by the housing crisis or who work in troubled industries. In some cases, lenders are even reining in credit lines after monitoring cardholders who shop at the same stores as other risky borrowers or who have mortgages from certain companies.
Major lenders like Bank of America, Citigroup and American Express are raising rates on existing balances and slashing credit lines. Financial analyst estimates that banks will cancel $2 trillion of available consumer credit over the next year.
How you can help yourself:-
- To pick up on any unexpected changes on your card companies slips (fine print), read terms and conditions on your account statement every month.
- Do not use card limit more than 30% to 40% of available credit across all credit cards. Going past that threshold is a trigger lenders to change terms. It can also dent your credit rating.
- Also try to maintain your credit rating at its current level; this may prevent card companies to change your account terms.
Consolidate credit card debt before any hars step from card company or debtors.
(source: NY Times & Forbes)
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