How the Credit Card Companies Are Taking Your Credit Away

Did you know that the credit card companies are now reviewing credit lines and if your income is down, they can reduce your credit. You may think you are secure, but then get a letter in the mail telling you that the amount of credit available to you has been reduced. Or if you apply for another credit card, the bank will look at all of your cards, and your call may trigger this credit card reduction.

I know because this just happened to me with the Bank of America, which has recently acquired Countrywide, the largest holder of mortgages in the U.S. — and why it was on the verge of collapsing before being acquired. What happened is that I have a no-interest loan that is about to readjust in July after 5 years. And in today’s economy, it is virtually impossible to get refinancing for most loans. So one loan broker who couldn’t get me a new loan helpfully referred me to Countrywide’s department that is handling loan modifications, where you might be able to get an extension of the current interest rate.

As the woman who answered explained, basically, you need to provide a couple of months of bank statements, your tax returns for the last year, a list of month to month bills and expenses, and then your information will be reviewed on a case by case basis. At the end of the call, she helpfully explained that I might apply for a Bank of America rewards card that might help me with the payments, since it was a no-interest promotion for 6 months. And she could refer me to a credit card specialist who could give me an instant approval for the card.

Fine, I said, since it sounded like a great way to get some extra credit at no interest while my business picked up. But what she didn’t tell me is that the credit card specialist would be reviewing all of my Bank of America cards, and besides approving this promotional card, the specialist could reduce the credit available through these other cards. The upshot was that after granting me $5000 on the new card, she reduced a $30,000 credit limit on another card down to $15,000, and then reduced or eliminated the credit available on two other cards which a bank manager had signed me up for. So the net result was that I suddenly lost about $22,000 in credit by responding to an offer to help me.

When I protested that this wasn’t right — luring a long-time customer in to accept what seems like a better offer only to end up in a worse credit position, her explanation was that even if I didn’t call, the bank does periodic reviews and they might have reduced my credit anyway. Or maybe not.

In any case, the incident served as another warning about how not only banks but credit card companies are cutting down on the funds available to consumers today. Is this a good way to stimulate the economy by making it harder for people to have funds to make purchases, start businesses, or make investments, which is what is needed to provide that stimulus? I don’t think so.

So just be warned. You may think you have a certain amount of credit available to you. But it may turn out to be less than you think.

Copyright 2009 Gini Graham Scott.