One way banks and credit card issuers are trying to make money—or at least stop losing it—is by getting rid of customers who are bad for business. The number of credit card accounts decreased by 72 million last year.
From the NY Times:
In the 12 months that ended in September, the number of Visa, MasterCard, American Express and Discover card accounts in the United States fell by 72 million, according to David Robertson, publisher of The Nilson Report, an industry newsletter. There are 555 million accounts still in the marketplace, he said.
But what kind of customer is being axed? Some cardholders say they’ve been blindsided, with their cards canceled without warning—and while they believed they were in good standing. (See the Baltimore Sun story I referenced recently.)
While many accounts are being closed, what might change the most in the credit card landscape is who will be approved for a new account. For some time now, getting a credit card has required about as much time and effort as ordering a pizza. But that is changing, as the banks are taking pains to assess risk and deem who is truly credit worthy. (It’s not clear whether the banks’ criteria for worthiness will be any more scientific and fact-based than Elaine’s “sponge-worthy” determinations in “Seinfeld.”)
More from the Times:
Banking officials said that because the new law limits their ability to reprice credit as a customer’s risk profile changes, they will instead have to price for future risk at the start, when a cardholder applies for a new card.
That means fewer applicants will be approved for new credit cards, and those who are accepted will increasingly be charged annual fees or variable interest rates, rather than fixed rates. Currently, about 20 percent of credit cards charge annual fees, a percentage that is rising, said Bill Hardekopf, chief executive of LowCards.com. Current cardholders, too, will be affected.
Higher rates, more annual fees, and fewer credit cards period: This is some of the unfortunate fall-out of credit card reform.