On CNBC the other day, Meredith Whitney, an analyst who predicted the subprime crisis and the turmoil we would see at Citibank, declared that the next big problem would be in consumer credit.
When I first heard her on CNBC, I did not think much of it. I have heard the death of the American Consumer predicated many times. And every time, the consumer finds a way to spend more money. While this cycle has to eventually end, I just was not willing to hold my breath to see it happen. I also did not see the banks killing the cash cow that is consumer credit. So I dismissed the commentary and went back to work.
But then I witnessed it with the pullback with my very eyes that night. I got a letter from one of my credit cards informing me that they were going to close the account. This is a credit card which I have not used in over two years. I kept the card open because it was the card I have had for the longest time and thus it is highly positive on my credit score. However, due to the inactivity, the bank was pulling my line of credit. Now keep in mind, I’m not a credit risk. I have always paid my bills on time and I have never carried a balance. My credit score is north of 750.
Part of this may indeed be that it cost them money to have me as an account holder when there is no activity on the card. So I don’t really blame them. I have gone through equally long periods of time without charging very much to the card, so I can not imagine this was the only reason. So given that, I doubt it is a coincidence that in this credit environment, the banks are closing lines of credit to their customers, even to their most credit worthy customers.
So if someone like me is losing credit, what must be happening to other people? Is this just another sign that we have a ways to go before we work our way through all these problems?
It makes sense for credit card companies to pull back on credit cards. It would also make sense for them to be more selective as to whom they give credit cards. However, those ads for American Express with “You have been pre-approved” keeps coming in the mail. I wonder when those mailings will slow down.