The credit crisis has resulted in more conservative lending practices. These days, it’s more difficult to qualify for loans that would have been easily available two years ago. That’s because lenders aren’t willing to take the financial risks they once took.

This trend has also caused many banks and card companies to lower their customers’ credit card limits. The unfortunate trickle-down effect is lower credit scores for card holders.

Credit scores are affected by a person’s debt ratio, which is the amount of debt they carry compared to their available credit. When credit limits go down, debt ratio goes up - and credit scores suffer as a result. Card holders might cease to qualify for loans, or they might be required to pay higher interest rates.

Always stay updated on your card’s terms and conditions, and watch carefully for changes to your credit limit. A credit monitoring program is also a good way to be alerted to sudden changes in your credit score. Equifax is one company that offers low-cost credit monitoring services. A web search for “credit monitoring” will turn up plenty of options as well. A little research and a little vigilance will prevent any unpleasant surprises on your credit report.

You probably pay your credit card balances each month (if not, you should). But, have you checked your limits lately? There’s been a huge shakeup recently as card issuers are starting to feel the mounting pains of increasing delinquencies.

Traditionally, you could expect that as long as you kept paying your bills on time and maintained your account in good standing, your credit line would remain stable, if not increase. That’s beginning to change.

A lot of people are opening their statements and discovering their card limits have been slashed to a fraction of what they once were. The reasons may startle you.

New Ways of Assessing Risk
Rather than waiting for customers to default on their accounts, card issuers are being proactive in identifying potential problems. They’re looking more closely at how and where customers are using their cards. Instead of relying solely upon their credit scores and payment history to judge their ability and likelihood to pay their bills on time, some card issuers are now digging into customer buying behavior, where they live, and what they do for a living when deciding how much credit to extend.

According to Business Week, many customers of CompuCredit have discovered that using their credit card to pay for a marriage counselor could result in having their limit cut in half. Bars and pool halls are on CompuCredit’s radar, too.

The Wall Street Journal has reported that major card issuers like J.P. Morgan Chase, Bank of America and Discover have also begun lowering some customers’ limits. While they are reluctant to divulge how they are judging their customers’ creditworthiness, at least one pattern has emerged: anyone that can be associated with the housing meltdown is being put under the microscope. For example, anyone living in areas hardest hit by the housing downturn, or working in industries associated with housing, such as construction and finance, could be seeing their credit limits cut.

What to do?
For those who run a small business that depends on credit, this latest news underscores the importance of not relying on a single credit card issuer. If you can diversify your cards, you’ll decrease the chance that an unexpected credit line decrease will cripple your business.

This post is from Credit Card Watcher’s Credit Card Deals Blog.

Has Your Bank Slashed Your Credit Card Limit?

The FTC is suing CompuCredit, a company that provides credit cards targeted to individuals with lower credit scores and poor credit histories.  The system CompuCredit uses to determine eligibility for credit is being questioned.  While the company seems to take into consideration most of the normal factors for obtaining credit- like how long you’ve had credit, whether or not you’ve exceeded credit limits and whether you make your payments on time- they also have some strange factors to determine eligibility.

CompuCredit also factors what people buy with their credit cards to determine whether or not to extend credit to people.  Customers who use their credit cards to pay for marriage counselors are denied credit; as are individuals who pay for massage parlors,  billiard halls, or their bar tabs on credit.

It seems credit companies can do whatever they want.  At least the FTC is taking action with a lawsuit against this company for it’s strange approval processes, but I can’t help but wonder how much of this type of “stuff” is factored into our actual credit scores?  If it’s possible for a credit card company to use this information to deny or approve credit, it is probably just as possible for a credit report agency to use such information in the calculation of our credit score or history?