Are You Credit Worthy? Millions Are Losing Their Credit Card Privileges

By Brad Tuttle | @bradrtuttle | November 10, 2009 | +

One way banks and credit card issuers are trying to make money—or at least stop losing it—is by getting rid of customers who are bad for business. The number of credit card accounts decreased by 72 million last year.

From the NY Times:

In the 12 months that ended in September, the number of Visa, MasterCard, American Express and Discover card accounts in the United States fell by 72 million, according to David Robertson, publisher of The Nilson Report, an industry newsletter. There are 555 million accounts still in the marketplace, he said.

But what kind of customer is being axed? Some cardholders say they’ve been blindsided, with their cards canceled without warning—and while they believed they were in good standing. (See the Baltimore Sun story I referenced recently.)

While many accounts are being closed, what might change the most in the credit card landscape is who will be approved for a new account. For some time now, getting a credit card has required about as much time and effort as ordering a pizza. But that is changing, as the banks are taking pains to assess risk and deem who is truly credit worthy. (It’s not clear whether the banks’ criteria for worthiness will be any more scientific and fact-based than Elaine’s “sponge-worthy” determinations in “Seinfeld.”)

More from the Times:

Banking officials said that because the new law limits their ability to reprice credit as a customer’s risk profile changes, they will instead have to price for future risk at the start, when a cardholder applies for a new card.

That means fewer applicants will be approved for new credit cards, and those who are accepted will increasingly be charged annual fees or variable interest rates, rather than fixed rates. Currently, about 20 percent of credit cards charge annual fees, a percentage that is rising, said Bill Hardekopf, chief executive of LowCards.com. Current cardholders, too, will be affected.

Higher rates, more annual fees, and fewer credit cards period: This is some of the unfortunate fall-out of credit card reform.

Related Topics: Credit Cards, Saving & Spending

@TIMEMoneyland

Latest on Moneyland

Retirement May 16, 2012

The Future of Retirement? 401(k)s That Look Like Old-Fashioned Pensions

A frantic search for safe, guaranteed monthly income in retirement is leading government and big employers to make their 401(k) plans look a lot more like a traditional pension. But you will still have to self fund
From our Partners
Cheap Thrills: 8 Ways to Save Money at the Amusement ParkDaily Finance

Romney: 'I'll Take a Lot of Credit' for Auto Industry RecoveryThe Huffington Post
Too Broke to Go Bankrupt: Price of Chapter 7 Is More Than $1,500Daily Finance
Rick Santorum Endorses Mitt Romney … At 11 p.m. The Huffington Post
Odd Spending May 15, 2012

Done Deal: CBS Gives Green Light to Sitcom Based on Groupon

Daily deal giant Groupon is known for its peculiar sense of humor. There was the time the site “bought” April Fool’s Day. The introduction of marketing gimmicks like the creepy virtual discount wheel called “Clicky” can only be attributed to some offbeat sense of what’s amusing. And of course, from the beginning, subscribers have been reading Groupon’s trademark absurdist, careful-not-to-offend descriptions for deals arriving in their in-boxes. The fact that there’s a network sitcom in the works featuring Groupon is apparently no joke, however.

http://money.blogs.time.com/2009/11/13/debit-card-overdraft-reform-gets-the-ok-now-what/ Debit Card Overdraft Reform Gets the OK. Now What? – It's Your Money – TIME.com

[...] There's no doubting that credit card reform is changing the system—just not solely in ways that consumers welcome. Beyond the rate increases and new fees, there are also mass cancellations occurring—many without warning to the customer—resulting in fewer credit card accounts period. [...]
http://money.blogs.time.com/2009/11/20/black-friday-what-we-know-so-far/ Black Friday: What We Know So Far – It's Your Money – TIME.com

[...] Cash-only is the hot trend. According to a survey (via WalletPop), 28.3% of consumers say they'll be using credit cards this holiday shopping season, down from 31.5% last year. The number of people surveyed who say they're only going to use cash increased correspondingly. Perhaps they're buying into the Dave Ramsey-type cash-only approach to avoiding debt, or perhaps their credit card accounts have simply been closed. [...]
http://money.blogs.time.com/2009/12/09/odd-economic-indicator-round-up-more-jews-moving-to-israel-more-cramped-cubicles-more-smoking-and-surfing-porn/ Odd Economic Indicator Round-up: More Jews Moving to Israel, More-Cramped Cubicles, More Smoking and Surfing Porn – It's Your Money – TIME.com

[...] compared with 28.3% this year. People are shopping with cash instead—perhaps because their credit cards have been cancelled, perhaps because they're simply trying to avoid going into [...]
http://money.blogs.time.com/2009/12/31/it-was-an-awful-year-for-the-economy-but-a-great-one-for-the-consumer/ It Was an Awful Year for the Economy. But a Great One for the Consumer? – It's Your Money – TIME.com

[...] The other reform (no, not that one, I can't deal with that now) is changing the credit card landscape dramatically. Mostly, the monumental credit card legislation was aimed at putting an end to many unfair and deceptive practices by banks and credit card companies. In many ways, the new laws succeed on the deceptive front: Consumers get a lot more disclosure regarding fees and rates, and a little more notice regarding when bills are due. But "unfair"? Many people would say the situation is less fair than ever, with skyrocketing rates and odd fees, and millions having their accounts summarily closed. [...]
http://money.blogs.time.com/2010/01/28/how-battling-the-banks-and-credit-card-companies-is-like-whack-a-mole/ How Battling the Banks and Credit Card Companies Is Like Whack-A-Mole – It's Your Money – TIME.com

[...] rises and fixed rates switched to variable ones. Due to the new rules, millions of people have been deemed unworthy, and they've had their accounts summarily closed without [...]
http://money.blogs.time.com/2010/02/22/tagging-along-with-credit-card-reform-more-fees-higher-interest-rates-and-less-credit-period/ Tagging along with Credit Card Reform: More Fees, Higher Interest Rates, and Less Credit Period – It's Your Money – TIME.com

[...] unintended consequence of the CARD act is that tens of millions of credit card customers saw their accounts closed, often without warning. The law forced card issuers to do some new math in figuring out what kind [...]
http://money.blogs.time.com/2010/07/22/why-a-smart-consumer-is-a-bad-credit-card-customer/ Why a Smart Consumer Is a Bad Credit Card Customer – It's Your Money – TIME.com

[...] get rid of bad customers. What customer qualifies as "bad"? One is the type you might expect, the one who is deemed a bad risk because of a history of paying off not paying off debts. The other "bad" customer may seem more [...]
http://money.blogs.time.com/2010/12/10/the-christmas-without-credit-cards/ The Christmas Without Credit Cards – It's Your Money – TIME.com

[...] are the reasons, along with the fact that banks have closed the accounts of millions of cardholders, that many sources have indicated credit card usage is down this holiday season. The NY Times [...]
http://epmarket.com/?p=3794 The Christmas Without Credit Cards | El Paso Market

[...] are the reasons, along with the fact that banks have closed the accounts of millions of cardholders, that many sources have indicated credit card usage is down this holiday season. The NY Times [...]
http://money.blogs.time.com/2010/12/13/bad-credit-you-still-may-be-a-good-risk-for-credit-card-companies/ Bad Credit? You Still May Be a Good Risk for Credit Card Companies – It's Your Money – TIME.com

[...] a long period of adjusting who was considered credit worth and closing millions of credit card accounts, the card companies are now ramping up efforts to [...]
http://money.blogs.time.com/2010/12/14/plastic-predictions-what-to-expect-with-credit-cards-in-2011/ Plastic Predictions: What to Expect with Credit Cards in 2011 – It's Your Money – TIME.com

[...] and higher interest rates, a steep rise in how complicated card offers have become, millions of customer accounts involuntarily closed followed by a time when card issuers are actively pursuing customers even if they have bad [...]
http://money.blogs.time.com/2011/03/15/credit-cards-new-annual-fees-for-customers-who-cant-close-their-accounts/ Credit Cards: New Annual Fees for Customers Who Can’t Close Their Accounts – It's Your Money – TIME.com

[...] hedge for the added risk, why doesn't the bank simply close these accounts? That's what happened to millions of accounts in the immediate aftermath of the CARD Act. Because of the high balances, and the absence of other feasible options, the customers themselves [...]
http://payoffcreditcards.us/2011/03/16/high-debt-credit-card-users-socked-with-new-fees/ High Debt Credit-Card Users Socked with New Fees | | Payoff Credit CardsPayoff Credit Cards

[...] added risk, why doesn’t the bank simply close these accounts? That’s what happened to millions of accounts in the immediate aftermath of the CARD Act. Because of the high balances, and the absence of other feasible options, the customers themselves [...]
http://www.creditwiseinfo.com/report-after-credit-card-reform-interest-rates-and-fees-finally/ Report: After Credit Card Reform, Interest Rates and Fees Finally … | Credit Wise Info

[...] few consumers amounted to: “thanks, though no thanks.” Soon after a legislation passed, millions of credit label accounts were summarily closed, and interest rates and fees soared. For a while there, a post-reform credit label stage looked a [...]
http://falltoprey.com/Interest-rates/report-after-credit-card-reform-interest-rates-and-fees-finally/ Interest rates » Blog Archive » Report: After Credit Card Reform, Interest Rates and Fees Finally …

[...] few consumers amounted to: “thanks, though no thanks.” Soon after a legislation passed, millions of credit label accounts were summarily closed, and interest rates and fees soared. For a while there, a post-reform credit label stage looked a [...]
http://money.blogs.time.com/2011/05/10/report-after-credit-card-reform-interest-rates-and-fees-finally-plateau/ Report: After Credit Card Reform, Interest Rates and Fees Finally Plateau – It's Your Money – TIME.com

[...] more than a few consumers amounted to: "thanks, but no thanks." Soon after the legislation passed, millions of credit card accounts were summarily closed, and interest rates and fees soared. For a while there, the post-reform credit card scene looked a [...]
http://savingmoneysite.info/credit-cards/report-after-credit-card-reform-interest-rates-and-fees-finally-plateau Report: After Credit Card Reform, Interest Rates and Fees Finally Plateau : : SavingMoneySite

[...] soon after the legislation passed, millions of credit card accounts were summarily closed, and interest rates and fees soared. For a while there, the [...]
http://www.gov-grants.co.uk/3685/could-your-credit-card-be-sold Could Your Credit Card Be Sold? | Gov Grants

[...] (MORE: Are You Credit Worthy? Millions Are Losing Their Credit Card Privileges) [...]