U.S. Banks to Cut Credit Limits for 58 Million Americans in 12 Months

August 23, 2009 by · 2 Comments
Filed under: Credit News 

This is natural to have when you have a reduction in confidence and credit in the financial system as a whole.   If you look where the funding for many of these credit card companies come from, you would know that they issue debt and right not that type of debt is not en-vogue.   It is worth noting that President Obama did just sign into legislation the new credit card regulation bill (C.A.R.D. Act).  I still most of this decision would logically be in response to a worsening economic environment, not an improving one.

News (New York Times):

Credit card companies slashed limits for an estimated 58 million card holders in the 12 months ended in April, even though a high percentage had good credit scores when their limits were cut.

The widespread cuts hurt about a third of consumers, but most people did not see a big impact on the credit scores, according to a study by FICO, the company that produces the most widely known credit scores. The limited effect may be because lenders often cut limits on cards that were unused or lightly used.

The statistics in some ways verify complaints from consumers that they were targeted despite doing nothing wrong, but also show that the cuts seem to have little negative effect for the majority of people.

FICO, formerly called Fair Isaac Corp., separated the cuts into two waves as it examined data provided by credit reporting agency Equifax. About 25 million card holders saw their limits cut between April 2008 and October 2008. Limit cuts jumped 32 percent in the following six months, as the economy faltered and banks looked for ways to cut risk.

Focusing on the 33 million card holders in the group that saw cuts between October 2008 and April 2009, FICO found the majority had strong credit histories.

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2 Responses to “U.S. Banks to Cut Credit Limits for 58 Million Americans in 12 Months”
  1. MichaelNYC says:

    Your comment that “they issue debt, and not the right kind of debt” deserves a discussion in and of itself. My understanding is that Credit Card Debt is not backed by tangible assets at the bank – but is a result of phony double entry accounting — where they book a credit card account as an asset, then proceed to “lend” against that asset (at 9/1 ratios) — essentially creating money out of thin air. My understanding is that the vast majority of this lending is not backed by cash, but by accounting practices that are shady at best. Especially since federal law stipulates that banks cannot lend their credit. Nice system, especially when this money creation results in 20+ interest rates. If anyone has better or further knowledge of this system, I would appreciate their response.

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  1. fwisp.com says:

    U.S. Banks to Cut Credit Limits for 58 Million Americans in 12 Months…

    Credit card companies slashed limits for an estimated 58 million card holders in the 12 months ended in April, even though a high percentage had good credit scores when their limits were cut….



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