September 3rd, 2009 by Reed Allmand 
Consumers affected by drastic changes in credit ratings.
More and more people are receiving the pink slip, but not just from employers. It seems that the credit card companies that were once so eager to be your friend and trusted financial advisor are also letting people go, or at least significantly reducing the welcome status of many consumers. A report by Business Week explains that for the first time in history, historically good consumers are being affected by the credit card companies’ consumer layoffs. The article gave the example of Terry Mazzera. A seemingly good candidate for credit and a dependable customer who consistently worked to maintain a credit score above 730, not an easy task in this economy. With no advance notice, her credit-card company sent her a letter advising her that it was slashing her credit limit to only $400 of the balance that she owned on the card, almost half of her prior available credit. The slashing caused her debt-to-limit ratio to plummet, potentially having a dramatic effect on her credit rating. Her company’s reasoning was that she had been late on a payment from a different department store card. At first blush, you may be thinking, they only took what she wasn’t using, so no harm no foul. But the foul is the effect on her credit rating, despite the fact that she had historically been a good customer for that company. Your credit score affects your ability to get credit for loans, mortgages, and other lines of credit and the rate you will pay for those lines of credit. It also limits the safety net that many of us rely on. The article explains:
“The credit limit reductions are confusing to customers because many borrowers have credit cards so that “when a rainy day comes along they can use it,” said Linda Sherry, spokeswoman for Consumer Action, a San Francisco-based nonprofit consumer education and advocacy group.”
Most of us have that one card in our pocket that we only use in emergencies, especially when building up sufficient savings is difficult or impossible. Without that cushion, and no savings, only one more drop in the bucket (like an unplanned job loss) is needed to cause a financial flood for many consumers.
For banks, it’s not personal. It is simply a business decision which can be explained. The article stated: that the “The worsening unemployment situation is causing banks to worry that even good customers could quickly become risky customers. As a result, the companies are preemptively slashing credit lines, especially those that aren’t being used.” Even though their explanation is that it’s just business, it is more than that for you. It’s not just personal; it’s extremely personal when their decision just put your family’s financial security or home in jeopardy. Many of us are just like Terry. We do the best we can to pay what we owe because that’s the right thing to do. The reward for those efforts used to be a better relationship with your banking partners. If your banking partner has decided to abandon you and you are now thrown into a financial mess, consider developing a new relationship with a qualified bankruptcy attorney. Bankruptcy is not necessarily the best option for everyone, but a good attorney will review your financial situation and see what the right options are for you and when to exercise those options. It just may be time to give your credit card company the pink slip.
About Reed Allmand
Allmand's vision is rooted in his own financially precarious childhood in Abilene "My father always had difficulty holding a job and supporting our family, so after my parents divorced when I was 12, my sister and I got jobs to help make ends meet," he recalls. "I remember what it felt like as a child to worry that our car would be repossessed or home foreclosed on."
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