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Credit Card Companies Get Tough

Francine L. Huff
LoanBiz Columnist

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The credit shortage is making it harder for people to qualify for new credit cards. Lenders have already become more choosey about offering mortgages and home equity loans to borrowers. Now some large credit card companies are reducing credit lines or requiring people to have higher credit scores to get approved for new cards. So what should borrowers do to qualify for credit cards?

Boost Credit History

In some areas with especially weak housing markets lenders are requiring applicants to have higher credit scores to open new charge accounts. FICO scores range from 300 to 850 and the higher the score the more likely a person will be approved for credit cards. A record of on-time payment is the best assurance of a good credit score. Being selective about applying for cards is wise because having too many credit card accounts (keeping two to six cards is ideal) can really drag down a credit score. In addition, every application for new credit has the potential to pull credit scores down.

Stay Within Credit Limits

Those who already have credit cards should avoid using their entire credit line -- the less available credit used, the higher the credit score. For consumers who can't resist using all available credit, it's a good idea to refuse any offers from lenders to increase the limit on credit cards -- while having more available credit can increase credit scores, it only works if it goes unused.  Some lenders have taken it upon themselves to reduce the amount of credit available to existing customers who've applied for more credit or seem to have trouble making payments -- this can reduce scores.

Watch Out for Agreement Changes

Many people know that credit card interest can rise or fall with changes in the prime rate or if a person is late with payments. But credit card companies can also change other terms of their agreements so it's important to read through any mailings received from lenders. Consumers should watch out for higher late fees and other charges. Credit card penalty fees increased to $18.1 billion in 2007 from $17.1 billion the previous year, Robert Hammer of bank advisory firm R.K. Hammer told the Wall Street Journal. Hammer said total fees could continue rising in 2008.

It's not impossible to get approved for a new credit card. But with financial companies tightening their standards, consumers need to get savvy about their credit and make wise decisions to manage it.

Sources
Wall Street Journal
CnnMoney


About the Author
Francine L. Huff is a freelance journalist and the author of The 25-Day Money Makeover for Women. She has appeared on a variety of TV and radio shows.

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