In that post, I also mentioned:
High-FICO, convenience-only card users (like me) who can't imagine (not like me) their plasti-credit lines largely vanishing altogether in the midst of economic turmoil might do well to consider just that eventuality.
Which brings me to Meredith Whitney. She's an analyst (one of very few whose opinions I care about) who covers the financial sector for Oppenheimer, and she's now talking about declining plasticard limits, too:
The U.S. credit-card industry may pull back well over $2 trillion of lines over the next 18 months due to risk aversion and regulatory changes, leading to sharp declines in consumer spending, prominent banking analyst Meredith Whitney said.
The credit card is the second key source of consumer liquidity, the first being jobs, the Oppenheimer & Co analyst noted.
"In other words, we expect available consumer liquidity in the form of credit-card lines to decline by 45 percent."
The credit card is the second key source of consumer liquidity, the first being jobs, the Oppenheimer & Co analyst noted.
"In other words, we expect available consumer liquidity in the form of credit-card lines to decline by 45 percent."
Now, granted, cutting card limits by 45 percent (her estimate) isn't anywhere near the beachfront of my "largely vanishing altogether" admonition. Which, I suppose, heartens me.
Here's a nifty thought: How much of the oh-so-important American Consumer's spending power is reliant on ever-increasing credit-card limits? What does this mean for the economy?
And this: What happens to Joe and Jane Sixpack's FICO scores when their outstanding credit lines get sliced by even 25 or 30 percent?
Even if they're paying balances off every month, their FICO's gonna get tagged. We know that the debt utilization ratio (the amount of overall extended credit you're actually using, expressed as a percentage) is a big deal; it counts for a full 30 percent of your FICO tally.
So decreased credit lines mean debt utilization ratios go up. Which brings FICOs down on a widespread basis. Which makes banks and lenders nervous. Which makes them decrease credit lines. Which makes debt ratios go up. Which makes banks nervous...
Well, you probably see the path here. I believe the technical term is "vicious circle."
Here's how a forum commenter named "Weezie" summed it up:
Credit ratings also impact auto and home insurance, rental agreements, and new jobs. Have a person with pristine credit but a bit maxed on the cards? Now you get a domino effect: lines cut, ratio quality declines, FICO goes down, rates scream up, credit limits maxed (get extra fees), FICO goes down again, rates go up, prices for auto insurance and other agreements go up (if you're not dropped), new job prospects (that require a financial check) dry up.
Oopsie.
So if you're a maxed-out family surviving only by the grace of Chase and Discover, well, I have a hunch that 2009 is going to be particularly memorable for you.
And not in a good way.
Yes, Virginia, deleveraging is a bi#%h.
Labels: Credit Cards
