Credit card firms lowering thousands of customers borrowing limits

Credit card firms are curbing customers’ spending by cuting their credit limits. MBNA and Capital One in particular are being branded “aggressive” in their actions to lower credit limits and they are increasingly rejecting people applying for their cards as predicted within the industry as we have seen more stringent criteria being introduced of late for new customers.

Co-Op, Halifax and HSBC are actively taking steps to help avoid financial crisis.

There are cases being reported where customers are having their credit limit slashed by 10%. Given the example of a £5,000 limit, someone could automatically be reduced to a maximum of £4,500.

The Co-Op have admitted to reducing credit limits on 50,000 of its customers, whilst MoneyExpert are quoting a figure of 500,000 people being rejected every month when applying for credit cards.

This information comes hot on the heels of Egg’s decision last month to cancel around 161,000 customers’ cards-some of whom had excellent credit histories.

Furthermore the Bank of England has released information that the average credit card’s interest rate has increased from 16.98% last year to 17.67% now. Notably the rates we see in advertisements to attract new customers have hardly altered at all, which would appear to indicate that it is more likely to be existing customers who have suffered the rate increase.

With the introduction of more stringent guidelines in place regarding lending conditions, high street banks are finding it more difficult and expensive to get access to funds/money. This is why the customers are paying a premium for their service-to help them make up the shortfall.

MoneySupermarket.com’s head of cards confirms that lenders have been doing this for a while, but it has become much more popular since the turn of the year, hence we are far more aware of the trend. He says that for the first time, demand is overtaking supply when it comes to credit cards and believes providers are becoming much more clever about who they lend to.

He believes that those most at risk of having their limit cut are those who perhaps have not kept up with payments either with their credit cards or possibly a utility bill-say a phone bill. He says banks are being trained t spot these signs, indicating a potentially bigger underlying financial problem.

At the other end of the scale, banks are also targeting those people who do not use their full limit on their cards. It is all about number crunching since they must show that they are lending pout the money they claim to be offering.

According to the Treasury, the ‘credit crunch” is expected to last until 2009, although HSBC deny their actions have anything at all to do with the credit crunch, but merely following a plan announced by their company two years ago to take a “more prudent approach to lending”.

Halifax also deny any change in the number of people whose limits have been lowered.