Credit Card Firms Tightening Up Says FICO

As the financial crisis continues, credit card companies are getting busy overhauling their business policies to decrease their exposure and stay competitive in the changing credit card industry landscape. While the financial crisis accounts for many changes in credit card companies’ policies, the much awaited credit card bill is having an enormous effect as well.

The effect of the financial crisis on credit card companies is quite easy to understand. Obviously, credit card companies need to decrease their risks so that the rising delinquencies and write-offs no longer threaten their businesses. The credit card bill effects are much harder to pin down. The credit card bill aims to make the playing field fairer for both credit card companies and credit card holders. However, many of the changes that the bill will bring will cut into the traditional profit avenues of credit card companies. Credit card companies are now busy countering each legislation in the bill which affects them.

The continuing overhaul of credit card company policies is having a negative impact on credit card holders in the form of higher interest rates, more fees and less available credit. According to FICO (Fair Isaac & Company), the outfit that tracks the credit scores of consumers, credit card companies have been making a lot of targeted reductions in the credit lines of consumers as part of the many reforms that credit card companies are imposing these days.

According to FICO, the total amount of credit available for credit card holders and loan consumers have been sharply reduced to around 15% between the months of November 2008 to April of 2009. These changes will go a long way in strengthening the balance sheets and reducing the exposure of major credit card companies such as American Express and Citigroup.

The trend is also not limited only to the United States. In the UK, similar moves have been observed among the country’s major financial institutions as well. Bank of England’s latest survey showed that a large number of credit card holders have had their credit limits cut between the months of April and June of 2009.

The current trend is also likely to the third quarter of the year, according to a poll taken by FICO from financial institutions.

FICO assures consumers, however that the credit limit cuts being made by credit card companies are selective and are not damaging the credit scores for a majority of those affected. According to the chief executive of FICO, Marg Greene, “Lenders are using a scalpel and not a hatchet to trim their revolving credit exposure”. He also added that “Both lenders and consumers perform at their best when they maintain smart, responsible credit strategies”.