Credit crunch for consumers (card rate goes up)

Market Watch ^ | 11/23/08 | Andrea Coombes

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Credit crunch for consumers

As card issuers hike rates, consumers forced to work harder to protect credit

By Andrea Coombes, MarketWatch

Last update: 1:36 p.m. EST Nov. 23, 2008

SAN FRANCISCO (MarketWatch) -- As credit-card issuers raise rates and fees and lower credit limits, consumers face higher-cost debt -- and more work maintaining their credit score.

In some cases, banks' former darlings -- consumers who paid consistently and on time but let their balances ride -- now are being hit hardest, asked to stomach higher interest rates and fees or try their luck with different card issuers.

For instance, some J.P. Morgan Chase & Co. (JPM JPMorgan Chase & Co) credit-card customers who have carried a balance for more than two years will be charged a $10 monthly fee starting in January and their minimum payment will rise to 5% from 2%.

Meanwhile, as many as 10 million Citigroup Inc. (C Citigroup, Inc) customers whose interest rates have not changed in two to three years will receive notice in their November statement that their interest rate is increasing by an average of three percentage points.

And in December, American Express Co. (AXP American Express Company) will lob a two to three percentage point interest-rate hike across a broad swath of consumers, plus increase the conversion rate for charges made in foreign countries.

Amid rising unemployment and higher delinquency rates, credit-card issuers are cracking down, particularly on the balance-carriers. "Given the current environment banks are starting to get very scared of the backlog of debt they're owed from their current borrowers who have carried balances," said Greg Larkin, a New York-based senior analyst with Innovest Strategic Value Advisors.

[CSM]

“Good credit scores are not only important for getting loans, but can also be for employment and apartment hunting.”

If being debt free, and as a result having a low FICO score, means that I have trouble getting hired by a particular employer then I wouldn’t want to work for them anyway. I would much rather work for a company that understands cash is king and a paid off mortgage is replacing the status symbol of a BMW!

[ETL]

You don’t need to owe much money at all in order to establish a good credit history. It’s just a way for those who don’t know you from a hole in the wall to get some idea of your degree of dependability and trustworthiness. How else can they do this without some official record of your prior financial/business dealings? That is what a credit score is all about. You just have to have the willpower not to go too crazy with credit.

[CSM]

I would assume that the interview process would vet my trustworthiness. I already work at a large company and I hope that any future employment would be with a small company, where the interviewer would not have to be cowed by some HR hiring policy.

If a company is so reliant on the FICO score, then I would also assume that the company is debt ridden. I’d also assume that their long term viability is risky as in my opinion debt equals risk. Keep in mind that in any job search, the vetting goes in both directions. How secure would I feel working for a company that is so debt ridden that they rely on the FICO score for hiring? Not very.