According to an Associated Press article, credit card companies, pressured by the faltering economy, cut credit limits to 58 million card holders from April 2008-April 2009 even those these card holders didn’t necessarily have bad credit scores.
In fact, FICO, a company that produces credit scores, reported 73% of the 33 million card holders whose lines were cut between October 2008-April 2009 had no new negative information in their files. Craig Watts, spokesman for FICO, speculates that lenders probably accessed different information to base their decision on whose credit lines would be cut.
Consumers, who are already feeling the pinch of the economy, are questioning why they are being punished.
Gail Hillebrand, senior attorney with Consumers Union, said, “The consumer perception is that ‘I did everything right and my limits were cut’ is true.”
FICO’s explanation was that some card holders had negative information, such as late payment histories, that affected their credit lines. Late payments are a sign that a consumer is a higher credit risk.
More than just the individual consumers depending on credit cards are the business owners who depend on personal credit cards for everyday business expenditures.
Hillebrand said these small business owners are having severe cash flow problems. Without a smooth cash flow, a small business struggles to pay their employees on time as well as buy new inventory and/or equipment to expand. Luckily, accounts receivable factoring can help these business owners when their credit lines are cut.
To read the entire Associated Press article, click here: Banks Cut Credit for 58M Card Holders in 1 Year