Spend or Save……Many Are Still Considered Risky
| June 22, 2009 |
As many consumers have changed the way they think about finances, so have the credit card issuers changed the way they view their cardholders. In the past, credit card issuers would have only given higher interest rates to its more risky borrowers, but now everyone is considered risky. The reasoning behind this is both simple and complex, but can be stated in one word, “recession”. During a recession, the risks associated with lending dramatically increase, and credit cards are often viewed as the riskiest form of consumer lending available. Simply stated, this means if you are a credit cardholder you are a risk regardless of your finances.
Generally in a recession, issuers will reserve around 10% of total loans to cover any losses that they may incur. In a stable economy, losses typically run a little higher than 5% of total loans. As you can see, more is needed and there is really only one way that issuers can raise this capital. Credit card issuers have to set new pricing structures on the products that they offer. In addition, issuers decrease credit limits to ensure that working and reserve capital maintains higher levels.
Everyday more and more consumers are walking to their mailbox to only see a change in terms notice waiting for them. Complaints of increasing interest rates have made their rounds, with many cardholders threatening to close their credit card accounts if rates were not restored to where they once were.
Believe it or not, times are hard for both credit cardholders and credit card issuers. Since the beginning of the economic downturn, issuers have had to increase rates and decrease credit limits to many consumers they would not have done to ordinary. However like any consumer or business, when survival is on the line many options remain open.
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