Credit Card Companies Get Tough
Francine L. HuffLoanBiz Columnist
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.
