Don't Talk to Your Credit Card Provider

After the first small measures of the Credit Card Act of 2009 activated on August 19, major financial institutions -- the same banks your taxes kept afloat last year -- seemed to be waging war on you, their small business and consumer credit card customers. In early August, I wrote a column warning you to be careful what you say to your credit card providers. That followed a column, last spring, when Bank of America launched the credit “help” campaign that wasn’t helpful.

The National Small Business Association (NSBA) announced results of their 2009 Small Business Credit Card Survey. Two significant findings, during the past year:

• 63 percent of small businesses had their credit card interest rate increased
• 33 percent of respondents have received a credit card statement after its due date

Maybe the banks haven’t planned an actual “war” against you, but their actions certainly resemble a lethal assault.

Tim Hartmann is the CEO of a small software company. His dedication has produced a successful high tech career; his responsible habits have established FICO (Fair Isaac Company) credit scores in the high 700s. Looking at a recent credit report, he noticed his credit limit on one of his Bank of America credit cards was lower than he recalled. In fact, it was half of its previous limit. Tim is one of those rare people who actually reads those documents you get from your bank. You know the ones: Printed on flimsy paper in 4 point type, they require a magnifying glass and immense patience to discover what your lender is about to do to your account. He knew he hadn’t received any notification of a limit change. So he called the B of A customer service line. His only question: When did the limit on this account change? Seems simple, doesn’t it?

It turns out that Tim has three credit card accounts with B of A. One had a $40,000 limit, one had a $16,000 limit, plus the one he was calling about, which previously had a limit of $22,000, but now indicated an $11,000 limit. Tim started out with credit cards from three financial institutions. Through B of A lender acquisitions, his two non-B of A accounts are now issued by B of A. Two accounts have zero balances. The account he was calling about has a balance that gets paid off rapidly and never exceeds 20 percent of the limit – even the new limit. He’s never run up huge balances and he’s never made a late payment. He’s financially stable, with an exceptional credit history. The customer service rep could not help him with his simple question.

He was immediately transferred to a credit analyst. When he asked why, he was told, “As people call for any kind of account information, customer service is required to forward calls to a credit analyst for an account review. The credit analyst makes on-the-spot account decisions.”

The analyst told Tim they would need to close the two accounts with a zero balance. While he doesn’t use them often, having $56,000 in available credit served as a cushion. He persuaded the analyst not to close them, but she insisted on reducing the credit limits to $11,000 on all three accounts. He asked for an explanation and was told, “We’re reducing exposure.”

That means $34,000 in available credit was eliminated from Tim’s credit profile during that brief phone call, essentially cutting his access to credit in half. It is likely that this action by B of A will result in lower credit scores. Why? Because he called customer service. With his impeccable credit history, the credit hit probably won’t be great for Tim. However, a person with average credit could see a rapid slide into subprime credit rating territory from the same action by a credit card provider.

According to Moody’s Investor Service, Bank of America and Citigroup have the greatest exposure to high risk credit card borrowers. To combat their risk, they’re closing and reducing limits on accounts at a rapid rate. If you use a credit card issued by financial giants, consider seeking a new credit card from a financially robust bank or credit union headquartered in your city or local region. Don’t close your current accounts since approximately one-third of your credit score is based on your credit history. Gradually, use your new accounts more and limit use of accounts from the megabanks. Local banks and credit unions rarely diminish your borrowing capacity for self-serving reasons.

The advice of reasonable credit minds has always been to immediately call your credit card provider, when you have a problem. Now, it seems that’s the last thing you should do with major lenders because it’s obvious their intentions have nothing to do with your credit worthiness. They’re focused instead on reducing the amount of credit they provide to the public. Just as your credit card provider is taking care of their balance sheet, you should commit to securing adequate credit for your business and/or personal use from financial institutions that truly care about partnering with you to achieve success.