Card Firms Ditching Cardholders

U.S. card companies have upped the ante by resorting to aggressive tactics in getting rid of what they consider as “risky” clients, according to some analysts. With the economic crunch still taking a huge chunk out of the credit industry’s revenues, card issuers are beginning to close down the accounts of cardholders who are constantly late with payments and have high balances. Experts say that this “cost-cutting” practice can escalate quickly and not even spare responsible clients.

Record-high losses and increasing delinquencies and charge-offs are forcing many card companies to adopt aggressive strategies to trim down costs and get rid of liabilities. For Americans struggling to pay off their card balances, this can mean cutting them off completely. The policy has some consumer advocacy groups raising questions over the legitimacy of the practice. Analysts say that card firms have the right and the authority to slash credit limits and even close down accounts they deem as high-risk. Come 2010, the federal government will be implementing tougher rules on the credit industry.

Experts say that the looming regulations may be playing a part in how card issuers are shutting down problematic cards. Already, some provisions of the new law have taken effect, affecting the card companies’ source of revenues greatly. To make up for loss income, analysts say, card issuers often have to resort to trimming expenses. This can often include shouldering the mounting card debts of millions of clients.

Analysts say that consumers who make late balance payments, have substantial credit debts, and too many revolving accounts are the prime targets for sudden closures. Because these cardholders represent more of a risk than a potential asset for card issuers, banks and card firms often place them on top of the list when it comes down to cutting losses.

Credit experts from the Bureau of Consumer Credit Protections advise against having too many open card accounts. According to specialists, having too many credit cards with high balances can have negative effects on credit ratings and histories. These consumers can often become the first ones to go when card companies decide to close down risky accounts. Financial experts suggest not having more than eight active credit cards. Having more than the suggested number can mean a more difficult time managing credit and balances.

Financial analysts also point out that if cardholders decide to close down card accounts, they should start off with the newer cards. Getting rid of these cards would have very minimal impact on credit ratings and histories.