Released: July 24, 2008

Credit cards: How to protect your limits

Source: Carl Winfield, Business Week (Free Registration)

As big banks such as Wachovia (WB), Citigroup (C) and Bank of America (BAC) continue to post multimillion-dollar writedowns to cover mortgage loan losses and other bad investments, credit-card holders are increasingly getting squeezed. Card issuers such as American Express (AXP) have started taking a closer look at the math that determines how much credit is available to each customer, and some are cutting their credit lines to keep more money in house.

That’s because credit-card issuers want to keep default rates as low as possible to protect their profits. American Express has begun looking at where certain clients live and whether their jobs are affected by the weak economy to gauge its default risks, says Molly Faust, vice-president of public affairs and communications at AmEx. “There has been more targeted risk in certain segments,” Faust says. That risk is greatest in areas that have been hit hard by the real estate slump—namely California, Nevada, and Florida.

Even with the credit crunch and tighter lending standards, issuers have not had to lower credit limits across the board. Issuers use lower limits to warn consumers they are on the road to financial ruin, says John Hall, a spokesman for the American Bankers Assn.

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