Wednesday 19th of December 2018

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Consumers Finding It Increasingly Difficult to Qualify for Credit Cards

The days when just about anyone with a Social Security Number could qualify for a credit card are long gone. Still reeling from the financial crisis and tough economy, banks are becoming more and more selective about the customers to whom they issue cards.

Now, lenders are putting a freeze on credit for all but those with the highest scores. Customers who are fortunate enough to get cards must jump through additional hoops to qualify, such as having to provide copies of their bank statements and pay stubs. Once they do qualify, their fees and interest rates are much higher than they would’ve been just two years ago.

It’s to be expected that banks would tighten their belts during a recession, but other factors are at play as well. The passage of the Credit Card Act of 2009 has forced lenders to radically change how they issue and manage cards. The new law seeks to minimize interest rate fluctuations, prohibit certain practices, and make consumers more informed about their debts.

Although lenders have until February of 2010 to meet the law’s provisions, some components of the legislation go into effect even earlier. For example, beginning this month, companies must send their customers’ bills at least 21 days prior to the due date and give a minimum of 45 days’ notice prior to changing any of the card’s terms. Consequently, banks are becoming more selective in how and to whom they issue cards in anticipation of the new regulations.

Before the new regulations came about, lenders would offer service to as many consumers as possible with the understanding that they could increase the interest rates for cardholders who were poor risks. As a result, people with sub-par credit produced millions of dollars of revenue for creditors, allowing them to quickly grow their operations.

With all of the new changes, however, the industry is frantically trying to determine who the new most profitable cardholders will be. “Without the ability to reprice customers, raise fees or rates, the old profitability calculation won’t apply,” explains Alan Mattei, the managing director for Novantas LLC, a consulting firm for banks.

Industry titans like Citigroup, Bank of America, and J.P. Morgan Chase have all increased their fees and interest rates, changed cardholders with fixed interest rates to variable rates, reduced credit lines, and closed accounts on risky or unprofitable customers. By 2012, some experts believe that card balances will drop by 10%-15% as lenders jettison their introductory-rate offers and cease to extend service to risky customers.