American Express has dropped its offer of free domestic airline tickets to companions of Platinum and Centurion cardholders. In November, Chase cut its cash back rewards program from 3% of the purchase price to 1%. And Discover is now forcing cardholders to return their cash awards of they have a payment more than two months late.
Megan Bramlette, managing associate at the bank consulting company Auriemma Consulting Group, was quoted in USA Today as predicting more and more trimming of credit card benefits.
Some are seeing a drop in overall consumer debt as a good thing – it fell 3.4% in November alone – but this may not have been because Americans wanted to borrow less. It may have been a result of actions taken by the credit card companies:
• Increased interest rates
• Reduced credit limits
Those actions have a snowball effect on consumers. Not only is a smaller amount of their monthly payment going toward paying down principal, the reduced credit limits are reducing their FICO credit scores.
Many consumers wanting new credit cards, car loans, and mortgages are being turned down because their FICO scores no longer fall into acceptable limits – even if they were well above limits a few short months ago.
Credit card companies are running scared in the wake of the financial crisis, and they have come to the realization that many Americans are now broke. In response, some are opting to mitigate their losses by accepting payoffs of less than the original balance – some at 50% or less.
According to a recent report in the New York Times, Bank of America worked with over 700,000 consumers in 2008 – lowering interest charges, dropping fees, and sometimes reducing loan balances.
2009 will be a year of cutbacks and even hardships for many consumers – while presenting opportunities for others. As fewer are able to obtain mortgage loans, and more foreclosures come on the market, home prices should continue to decline. In addition, auto makers are offering loans with little to no interest, just to get those cars moving off the lots. Thus, consumers with high credit scores and money in the bank may be in a position to “choose their bargains.”
Even consumers with no interest in borrowing this year should be working to maintain high credit scores, because no one knows what the future will bring. So don’t wait until you need credit to see what your credit report says.
Not only are the rules changing, so that your score could have dropped without your knowledge, experts say that 25% of all credit reports contain errors that could damage your credit. Get your free credit report with scores today – just to be safe.
