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"Culled credit card limit could cause problems"

By admin | March 31st, 2008 | Featured

Credit card firms have found themselves at the centre of controversy for a number of reasons over recent weeks. The Internet lending giant, Egg, came under fire after it decided to cancel the credit card facilities of 161,000 customers, despite the fact that many of them appeared to have good credit and claimed to have never missed a repayment. More recently there have been reports of a number of credit card firms slashing the limits on customers’ credit cards without even bothering to tell them that the limit has been cut.

This move has served as a double whammy to cardholders, as it has not only affected their credit limit and spending capabilities, but could also result in future problems when it comes to getting credit. The various credit card firms involved in the nationwide credit card limit cull have cut the credit limits of these customers to just £100 over their existing balances, which has resulted in many people seeing their limits slashed considerably.

None of the customers were told that their limits were going to be cut, and lenders have stated that the reason for this was that limits were going to be cut to £100 over the cardholder’s existing balance. They went on to state that informing the customers of the move would have given them the opportunity to go out and spend on the card to build up their outstanding balance, which would in turn increase their credit limit.

However, customers have expressed outrage claiming that they have been humiliated as a result of the move after trying to make purchases.

One customer recently explained how his limit had been cut from £5000 to £700 without his knowledge, stating: ‘I had to endure the humiliation of having it declined twice in B&Q. There was a long queue behind, I was embarrassed, but luckily had other cards with which to pay it. I have had the card for 10 years and, surprise, surprise, I’ve never missed a payment and always paid off the balance at the end of the month. But what really made me angry was that after I asked them why they didn’t give me some notice, they said that if they did that, I could just rush out and spend wildly in an effort to keep my balance up. I found that incredibly insulting.’

However, this could be just the start of the problems for consumers like this. Experts state that the way the credit limits have been cut will put most up these cardholders very close to their maximum credit limits, and this is something that lenders look at when deciding whether to give further credit. One industry professional said: ‘These changes will show on your credit report and could have implications. Lenders can assess this information any way they wish. If you are only a couple of pounds below your balance that could ring alarm bells.’

Another stated: ‘The credit limit cut does create an interesting conundrum. The credit scoring models don’t take into account limits cut by creditors to minimize their own risks. So a limit cut that leaves the debtor essentially maxed out can only protect the lender and harm the debtor. This seems grossly unfair since the debtor isn’t given ample warning or notice to clear the decks and instead is caught by surprise.’

Tags: cancel accounts, Credit Cards, egg

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