Just yesterday, I was lamenting the decline of the credit card mail offers, as it had been some time since I had pulled one from the mailbox.  Apparently, I spoke too soon.  Today, not one, but two offers from Chase were in my mailbox.  However, the offers I received only reinforced my concerns about 0% offers.  A year ago, mail offers from Chase often offered a fixed apr for life on balance transfers or a 0% APR for up to 15 months.

Today’s offer:  a 0% APR for 6 months on purchases and balance transfers.  While this is quite nice of them, it is further evidence that credit card companies are slicing consumer friendly 0% APR deals.  Soon, I fear, they may disappear.

Given all the horror stories consumers have been sharing about Chase, I put these offers straight into the shredder.  And, while I lament the fact that the length of the 0% rate was a lowly 6 months, the very fact that credit card companies are sending mail is the first positive I’ve seen in a while.

Over the past four months, I’ve been contacted by a lot of consumers who had their credit card limits decreased.  Many of these consumers had their credit limits reduced to as little as $100 more than their current balance, putting them at risk of over the limit fees and penalties.  And, while the old adage is adding insult to injury, the real issue here is adding injury to the insult of getting your credit limit decreased.

Overview

When a credit card company cuts your credit limit, this can have a huge, negative impact on your credit score.  The reason lower credit limits can rapidly erode your credit score lay in the heavy weighting given to the utilization of available balances.  For example, a person with $900  in credit card debt and a credit limit of $10,000 gets a credit score boost because they are using less than 10% of their available revolving credit.  Even at 30%, your credit score isn’t negatively impacted.  However, when a credit card company swoops in and cuts your limit to $1100, you are now using nearly 90% of your available credit.  In other words, you’d be maxed out.

Things Are Getting Worse

The first people to get stung by credit limit reductions were those on the border of good to average credit.  These consumers started getting hit soon after the collapse of Lehman Brothers in the fall of 2008.  Now, however, we’re getting emails from customers who have good credit, always pay on time, and aren’t even close to maxed out.  And the trend is getting worse.

A www.bloomberg.com article penned by Alexis Leondis contains this startling observation;

“About 45 percent of U.S. banks reduced credit limits for new or existing credit-card customers in the fourth quarter of 2008, according to a Federal Reserve January survey of senior loan officers. Financial institutions may slash $2 trillion in credit- card lines in the next 18 months, Meredith Whitney, a former Oppenheimer & Co. analyst, wrote in a Nov. 30 report. “

Based on a number of email and blog comments we’ve received, the timeline for these credit limit cuts has probably decreased from 18 months to today.

What You Can Do When Your Credit Limit is Decreased

1. Act Quickly:  When you learn of a credit limit cut, especially one that puts you at or near your credit limit, you need to move very quickly or you risk falling prey to numerous traps.  Here’s one example:  Let’s say your limit gets cut to $100 more than your current balance, and you have an auto-payment set up for $101.  When that goes through, you’ll not only go over your limit (and get hit with a fee) but also, you will have given the credit card company a legal and legitimate reason to raise your interest rate. 

If you fall into this position, make a payment to your credit card online or by phone immediately and cancel any auto pays you have in place.

2.  Apply for a New Credit Card:  It takes a few weeks for changes by your credit card to hit your credit report.  If you apply for a new credit card immediately, you may be able to get approved before your credit score decreases.  This will not only give you access to credit, but it could also help your credit score, as you will now have more credit available to you (For information or to apply for a new credit card, you can compare offers in 0% APR credit card section of this website.)

3. Pay Down Your Credit Card Debt:  While obviously easier said than done, paying down you debt will help limit the damage done to your credit score.  However, there are a few things to be careful of.  For example, if you think you will need this money in the near term, you’re better off holding on to it and worrying about your credit score later. 

4.  Monitor Your Credit Closely:  If you’ve recently been clobbered with a credit limit decrease or another adverse credit event, you may want to check out your credit score.  There are a number of websites that offer free credit monitoring trials for 30 days that provide you with access to all three of your credit reports and scores.  These sites also have tools that enable you to estimate how certain events, such as getting a new credit card, will change your credit score.

Final Words

Unfortunately, all consumers are now at the mercy of our desperate banks.  In the short term, its always best to plan for the worse.  Today, that means staying on top of your credit card accounts, paying down debt, and vigilantly defending your credit score.  Getting your credit limit cut in times like these is the last thing most of us need.  However, smart, decisive action can help you avert the worse.

-Jeffrey Weber

To review credit card offers and free credit reports, please visit the main section of Smart Balance Transfers where you can compare offers and apply online. 

I realized today that there’s been a sound missing from my life.  At first I couldn’t figure it out, but when I was getting the mail today, it clicked.  I was missing the sound of my shredder.  This time last year, my shredder was running full steam, shedding two or three credit card offers a day.  During the fall, the credit card offers were coming in slowly, but my shredder was at least getting exercise a few times a week.

Lately, however, there haven’t been any credit card offers to shred.  No 0% introductory offers.  No fixed for life balance transfers.  Not even an airline credit card with an $85 annual fee.

As someone who spends much of his life researching and writing about credit cards (its as depressing as it sounds), I’ve grown to miss the afternoon ritual of reading and shredding credit card offers.  I’m really starting to think I wasted money when I bought the shredder with the special credit card hole.

While the lack of paper and plastic running through my shredder has its upsides (more trees, less wasted plastic), the complete absence of credit card offers highlights a growing problem for consumers:  nobody wants to issue credit cards.  Last year, I could count on at least three American Express, two Bank of America, a Chase, and a Capital One offering per week.  Plus, a Discover or HSBC now and then.  Now, like many Americans, I’m being completely ignored.

The number of credit card offers sent through the mail has been in decline for some time.  However, most people greeted this trend with a sigh of relief.  Unfortunately, this is not a good thing at all.  First of all, when there were offers, there was competition.  People could choose from multiple deals (you can still do this online, but again, there are fewer offers to choose from).  More importantly, people were being reminded of the fact that better deals existed.  I’m probably one of the few people who wakes up thinking about 0% balance transfers.  Most people need a reminder, like a advertisement.  I’m sure many millions of people saved quite a bit of money because a 0% credit card offer piqued their interest.

Ultimately, the sad truth is that credit card companies don’t want our business anymore.  And they definitely don’t want us taking advantage of money saving 0% APR deals.  Fortunately, for the time being, you can still get a 0% credit card online at-gratuitous plug warning-websites like Smart Balance Transfers.  Unfortunately, the people who aren’t actively seeking to save money on credit card interest are missing out on rare opportunities to reduce expenses.

So I remain sad about my silent shredder and my empty mailbox.  Sure, I love trees as much as Al Gore.  But I’d rather see a few more credit card offers sent out so more Americans can use 0% deals to help them deal with these tough times.

Update 1:  American Express No Fee Balance Transfers

American Express has shifted its balance transfer offerings dramatically over the past few months.  From 2005 to 2008, they offered fixed APR balance transfers for life with a number of cards.  However, as the credit crunch intensified last fall, they ceased providing these offers, replacing them with low rate balance transfers (2.9% for a year) that also carried 3% balance transfer fees. 

Update 2:  Industry Trends

If current industry trends continue, we may see the disappearance of the 0% rate altogether in the coming months, much as we have seen the disappearance of no fee balance transfers.  In all likelihood, this will be replaced with low rates of 2.9% that were common in the late 90′s and early 2000.  For consumers, this is not a good thing.  0% APR balance transfers provide a refuge for people with good credit scores who are working to pay down debt. 

As I’ve written before, and will surely write again, people contemplating a 0% balance transfer should act quickly before these offers become more scarce.  Credit card companies simply do not want to give consumers free money for a year, even if they are extracting 3% balance transfer fees.  And over the past few months, credit card companies have gotten stingier.  Nothing has occurred to change this.  In fact, the financial chaos engulfing all the major credit card companies will in all likelihood lead them to get even stingier.  Just take a look at the stocks of companies like Capital One, Discover and American Express.  As these continue to drop, so will the availability of options for consumers.

Stock Quotes:

http://www.google.com/finance?q=NYSE:COF

http://www.google.com/finance?q=axp

http://www.google.com/finance?q=dfs