Tempted to loot cards as credit limits are being slashed.

[Luke Skywalker]

I just freaked out when I found out that credit limits are being slashed for customers who have excellent credit scores and are making their payments on time. This is because of the economy.

 

Your account can be red-flagged if you take out a cash advance, or if you just make the minimum payment. If you google this, you can find plenty of articles and stuff about this happening. I just found out about this today and it is sort of freaking me out.

 

In fact, I was thinking of looting my cards before they cut the credit or something and like going on a trip somewhere and living it up.

 

Then, I'm looking at the psychology behind that thought. The idea is I can potentially do that at any time I want, but because of an interest in maintaining a credit score and behaving in a responsible adult manner, I am constrained to pay off my balances in full all the time and carry no debts, except on one card with a low interest rate.

 

Yet, if there is a prospect that a card could lower, then I feel like I'm losing something if I don't spend all the limit on the card right away -- like the prospect of potentially losing a credit limit is creating a sort of -- the sky is falling down, better spend your money and live life before they drop the bomb and lower your credit limit. It's like a sort of inhibition goes away if I see there is an anarchy going around.

 

For example, I have fantasies of spending money on travel, but will never do it, but then you think, if you had only a month left to live then would you start living life then, what would you do? It's like the reductoin on a credit limit seems to register in a weird way that I have a short life span and better live it up. I don't understand this about myself. Does anyone else with a high credit card limits think this way too -- just looting your account and doing something crazy if you found out you would loose that limit and say a week's time?

[COtuner]

No, not at all. It's too painful to think about paying it all off later.

[Luke Skywalker]

I don't have any assets or a job where anyone can garnesh any wage -- I'm practically judgment-proof - so I could spend the money and just wait six years for my credit to re-set if I wanted to. I get a commission here and there which keeps my credit under control so far. But I'm getting this sensation of 'free money' with the idea the limit could be reduced. I don't understand it.

 

But the point is, does that have a psychological effect if your credit limit is being reduced that would cause you to want to spend up to that limit, or not pay down the card and just stick to the minimum payments if you already had allot of debt on it?

[COtuner]

I absolutely HATE putting anything on credit if I can avoid it. Reducing the limit to me, means only that my credit worthiness would be less and I'd have more trouble getting a mortgage or car loan at a low rate because you are more likely to run up high balances if some crisis hits.

[Sn0man]

From the Wall Street Journal

 

"As if access to credit wasn't already tight, credit card companies are slashing consumer credit lines and closing inactive cards - a move that could harm borrowers' credit scores and restrict access to loans.

"Card issuers are playing defense, "trying to limit their risks in "the poor economic climate and against the prospect of continued consumer defaults," said Greg McBride, senior financial analyst at link removed.

But the lenders' actions could bring more worries for consumers.

About 20% of banks reduced credit limits on existing credit cards of prime borrowers and 60% of banks lowered limits for nonprime borrowers, according to the Federal Reserve's latest survey of senior loan officers in October.

"We are taking a more aggressive look at accounts to control risk given the current economic environment," said a spokeswoman for Bank of America Corp. "We are closing accounts with zero balances that have been inactive for more than a year and may adjust customers' credit lines up or down" based on "their risk profile and performance," she said.

A spokeswoman for J.P. Morgan Chase & Co. said "we will lower credit lines for customers who are showing signs of increased risk or inactivity."

And American Express Co., US Bancorp, Washington Mutual Inc. and Wells Fargo & Co. said they would reduce cardholders' credit limits because of perceived customer risk, such as high balances or late payments on credit cards, according to a July credit card survey by Consumer Action, a consumer education and advocacy group.

These actions not only restrict your borrowing power, but they can also substantially hurt your credit score."

 

 

 

That's what they're doing - trying to prevent people from spending money they don't have to lower risk of default. Basically, they're trying to prevent you from doing what you originally posted about.

 

That makes a lot of sense given the current economic climate.

[alli]

I don't have any assets or a job where anyone can garnesh any wage -- I'm practically judgment-proof - so I could spend the money and just wait six years for my credit to re-set if I wanted to. I get a commission here and there which keeps my credit under control so far. But I'm getting this sensation of 'free money' with the idea the limit could be reduced. I don't understand it.

 

But the point is, does that have a psychological effect if your credit limit is being reduced that would cause you to want to spend up to that limit, or not pay down the card and just stick to the minimum payments if you already had allot of debt on it?

 

People spending money they don't have is part of the reason the economy is as it is now. You don't want to be a part of that. I think the temporary enjoyment of a vacation is not worth the pain of debt I can't pay off later.

[Luke Skywalker]

That's what they're doing - trying to prevent people from spending money they don't have to lower risk of default. Basically, they're trying to prevent you from doing what you originally posted about.

 

That makes a lot of sense given the current economic climate.

 

Exactly. Isn't it a self-fulfilling prophecy. They may be creating the crises.

The reason I thought about that idea is because of what they are doing to other people, and I better do that before I also get hit.

 

If people thought like me, then that could really spiral for lots of other card holders -- but I suppose I'm just a negligable statistic.

[Luke Skywalker]

People spending money they don't have is part of the reason the economy is as it is now. You don't want to be a part of that. I think the temporary enjoyment of a vacation is not worth the pain of debt I can't pay off later.

 

Actually, I have assets, my bad, but my credit-limits are double my total assets. That means if I maxed out all my credit lines, I would only be able to pay back 40% and the rest would go on default unless I made more deals or had a higher productivity.

 

The idea I was looking at -- is one of psychology - that it registers in the mind that I have 'free money' when there is an association with 'credit line decreases' or some sense of anarchy. I don't get that. I wonder if other people felt that way too.

[COtuner]

I had to start using my two zero balance cards just to keep them. One is at a ridiculous 27% (my first card when I screwed up in college 20 years ago) and they won't lower the rate for some unknown reason, the other is at 5% and I've had about 4 years. I pay the balance off each month and only charge a couple hundred bucks (like groceries or something). My credit score has gone up a lot - even in this economy I was able to get an unsecured personal loan to cover an emergency. thereforee, I will NEVER get tempted by credit cards again.

[COtuner]

Actually, I have assets, my bad, but my credit-limits are double my total assets. That means if I maxed out all my credit lines, I would only be able to pay back 40% and the rest would go on default unless I made more deals or had a higher productivity.

 

The idea I was looking at -- is one of psychology - that it registers in the mind that I have 'free money' when there is an association with 'credit line decreases' or some sense of anarchy. I don't get that. I wonder if other people felt that way too.

 

I think you still look at money in terms of what you can buy with it, and credit is a way to get more faster. That's a problem, because it's not really spending money, it's spending a promissory note. In essense you are thinking about committing fraud.

[Luke Skywalker]

I'm a Christian anyway, and I'm not serious. I'm merely indulging in the philosophical aspect of actions motivated by perceived scarcity of opportunity. In this case, a potential lowered credit limit is a perceived scarcity of something I guess? Usually people act if something will become scarce quickly. For example, if you knew a store is having a 90% sale for one hour, you may buy stuff you don't really need right? Same thing here?

[COtuner]

That's good to know!!

 

I think there are other opportunities that ought to be more tempting. Buying real estate, for example.

[alli]

I think you still look at money in terms of what you can buy with it, and credit is a way to get more faster. That's a problem, because it's not really spending money, it's spending a promissory note. In essense you are thinking about committing fraud.

 

I was wondering that... if you purposefully charge things/take out loans with the intention of never paying them back (instead filing bankruptcy or something)... if that would be illegal.. a specific crime.

[alli]

I'm a Christian anyway, and I'm not serious. I'm merely indulging in the philosophical aspect of actions motivated by perceived scarcity of opportunity. In this case, a potential lowered credit limit is a perceived scarcity of something I guess? Usually people act if something will become scarce quickly. For example, if you knew a store is having a 90% sale for one hour, you may buy stuff you don't really need right? Same thing here?

 

I see where you're coming from, but I would never charge something without having the funds of actually paying it back.. just because I can.

 

Glad to hear you were just "philosophising" and not actually planning to do it! I think I just made up a word. ?

[Luke Skywalker]

I was wondering that... if you purposefully charge things/take out loans with the intention of never paying them back (instead filing bankruptcy or something)... if that would be illegal.. a specific crime.

 

I'm not sure how the laws are in the States -- people there go to jail for stealing 50 cent donuts or for having NSF checks and I think they are crazy down there. Up here in Canada we have clear distinction between a criminal and civil justice system.

 

Matters such as that type of fraud would not be looked at seriously and a creditor's only recourse is to take the matter to court to recover their money if the debtor refuses to pay according to contract and if the credit bureau sanctions and collection agencies are insuficient. If a person is judgment proof (i.e. no seizable or sellable assets or garnishable wages), then they wont even bother wasting money taking that person to court and just write it off. In a sense if you are judgment-proof, and there is no other recourse, then you are scotch-free -- except for the fact that the credit bureau is important. That credit bureau can even effect if you can even rent a place and can not be taken for granted.

[COtuner]

In the States the collection agencies will make your life a living hell. Credit card companies aren't the ones that go after people. They sell the bad debt and the collection agencies buy it, inflate the amount owed to several times the original amount (in many states that is legal) and then file a judgement against you and start garnishing wages or ruining your life. They never go away.

[yellow_sweater]

In this case, a potential lowered credit limit is a perceived scarcity of something I guess? Usually people act if something will become scarce quickly. For example, if you knew a store is having a 90% sale for one hour, you may buy stuff you don't really need right? Same thing here?

 

This is interesting to me because I instinctively view credit differently.

 

To me, credit is not "money in the bank." If anything, I feel sort of icky using credit at all... sort of like taking a loan from my parents or something--I always repay my balances in full on every statement. Because of that, I've never felt like credit is my own money in the bank... on the contrary, I have to live with the feeling that I'm spending someone else's money.

 

Thus, the idea of my credit becoming more scarce doesn't bother me much. It feels like, well, I only use it if I have the funds to repay it immediately, so does it matter that much if I pay for something via cheque or credit card? Nope, it's all money.

 

Does that make sense? I totally see where you're coming from, my brain just thinks of it in a totally different way...

 

YS

[alli]

The only reason I want a higher credit limit is to increase my credit score. My credit report said 2 things are keeping my score down.. that my credit history isn't long enough (can't do much about that) & that my credit limit is too low. Not like I'd ever charge $50,000 on a credit card anyway!

 

I see credit like you, YS. My credit card is my debt, not my money to spend!

[pianoguy]

And now I think we see why we're getting into the economic crisis in the first place. No, credit cards are not free money. In fact, it's incredibly expensive money. Our grandparents knew this, now we're learning it ourselves.

[Luke Skywalker]

In the States the collection agencies will make your life a living hell. Credit card companies aren't the ones that go after people. They sell the bad debt and the collection agencies buy it, inflate the amount owed to several times the original amount (in many states that is legal) and then file a judgement against you and start garnishing wages or ruining your life. They never go away.

 

Again, if they are employing the civil system, then if you are judgement-proof you are fool-proof. You just have to worry about a few pesky collection calls. So what? Change your number. Even sue them for harassment. If they counter-sue you for the card you they cant collect anything anyway if you got no asset.

 

That's what I'm saying -- the civil system only means something if you have a garnishable income or have seizable assets, otherwise it's a big joke. Your bureau gets reset after six or seven years whatever. If someone had $ 100 000 or $ 300 000 in lines of credit, has no assets or income and just loots all those cards and stashes the money in a safe somewhere, then six or seven years with an additional hundreds of thousands of dollars.

 

Anyway, I don't have credit limits that high anyway, and I'm glad I don't, or I'm not sure how much I'd be philosophising (there is some tests in life that I don't want to be in -- that is one of them) -- I still think you'd feel a stain on your character if one did something like that though.

[Sn0man]

I'll second this. Though here in Canada, credit is harder (much, much harder) to get thatn in the US, and if you screw your credit up it takes FOREVER to get it back on track. Trust me, I had a personal bankruptcy in 1999 - and even though i've never missed a payment since and always pay everything on time and have for the last 10 years, I have absolutely zero credit. I don't even have a score.

 

If you ask me, just because you can be 'judgement proof' doesn't mean you won't pay for it in the end.

[yellow_sweater]

The only reason I want a higher credit limit is to increase my credit score. My credit report said 2 things are keeping my score down.. that my credit history isn't long enough (can't do much about that) & that my credit limit is too low. Not like I'd ever charge $50,000 on a credit card anyway!

 

That's a really good point... I hadn't considered that. Yes, that's a really good reason to want higher credit limits. But it seems you'll get more credit as your credit score goes up, and as your credit limit goes up, so will your credit score. Sort of a Catch-22, eh?

 

YS

[Luke Skywalker]

I'll second this. Though here in Canada, credit is harder (much, much harder) to get thatn in the US, and if you screw your credit up it takes FOREVER to get it back on track. Trust me, I had a personal bankruptcy in 1999 - and even though i've never missed a payment since and always pay everything on time and have for the last 10 years, I have absolutely zero credit. I don't even have a score.

 

If you ask me, just because you can be 'judgement proof' doesn't mean you won't pay for it in the end.

 

Yeah, I know what you mean. In 1998 I used up allot of credit cards on the stock market, and the stocks went bad. Then from my remaining cards, knowing I was a gonner, I just looted them all and stashed the cash in the basement and bought a used car, repaired it, and kept the money in an envelope somewhere.

 

However, I don't think I had a fair life. I was screwed over getting student funding to better myself at school. I was working on my dad with commercial Real-Estate with the hopes of making a big deal to pay back all my creditors and bad luck with people happened where I couldn't make any money, even on deals we made -- and I could go on and on.

 

I didn't have enough money to even declare bankruptcy. However, what I got angry with most of all was that I didn't spend the money having a good time, it was wasted in the stock market and survival. The only good time I spent on a $ 15 000 card was a $ 30 buffet at an Italian restaurant. The rest of the money was lost in the stock market. Some of the stocks I sold went up in value considerably --- so I think it's just meant to be that way.

 

Right now for the past couple of years I have been rebuilding my credit, and now I have credit lines almost up to the levels it was at in the past. There is no bankrupcy on record. I had some bad statements in the bureau from the past debts, but I was so angry I took them all to court and it was settled with me. However, there is one area where there is an ugly head.

 

If I apply for credit for one of those creditors I messed up with in the past, they will bring up their own records and deny credit, even if I have a perfect credit score until I pay them back. It's a good thing that I didn't deal with every bank back in 1998 since I was getting credit left right and centre.

 

But you are right, life in Canada sucks if you get yourself off tract - but I think I just have a luckless past because I should have rebounded and have been able to pay those debts back rather than be unable to make any income - so in a sense I don't feel bad about that since there is no sense of fairness anywhere.

[Luke Skywalker]

That's a really good point... I hadn't considered that. Yes, that's a really good reason to want higher credit limits. But it seems you'll get more credit as your credit score goes up, and as your credit limit goes up, so will your credit score. Sort of a Catch-22, eh?

 

YS

 

Not in this economy. If you have a high credit limit that you haven't used, the bank can now arbitrarily lower it. They feel you may use it if you are in a crises and may never see their money again. A high limit may get you red-flagged now.

 

The normal rules of credit maintainence, paying on time and being up to date, etc... are not applying here. Credit companies are looking at what you are buying (don't shop at the dollar store with a credit card), if you are making cash advances, if you live in a ghetto or place with lots of foreclosures, and other nonsense that has nothing to do with your credit worthiness.

 

People with Amex cards of $ 30 000 limits who paid their cards on time for 15 years, get their card reduced to a $ 600 limit because their account was red-flagged because they made a 'minimum payment' one particular month, so that sounds like trouble.

 

That's why in this economy, nobody is safe and if you are relying on credit for an emergiency, then you may not have access to the credit you think you have if such a crise were to come.

 

Even here in Canada, some creditors if they see that your debt is just rising higher and you have one reserve card that you are not using or appear to be using for an emergiency - they will just cancel that card arbitrarily.

[yellow_sweater]

Wow.

 

I'm sort of happy that I don't know a whole lot about credit (in the sense that, if I don't have money to buy something, I don't buy it). I am also very, very thankful that I have a job that's allowed me to build up a nest egg. Except in the most extreme of circumstances, like a catastrophic medical emergency or something, I can live off my savings for quite a while. Helps to have a simple lifestyle with few obligatory payments and no debt.

 

Just out of curiosity, where are you learning this from? I am interested in learning more for myself. Thanks Luke.

 

YS