Credit Card Companies: Irresponsible Lending
Back in mid-2015, after finding out that Costco wouldn’t accept my Discover card, I signed up for an American Express Blue Cash Everyday card with a $6,000 credit limit. Within months, this was doubled to $12,000 and within a year, it was increased again to $20,000, neither of these two increases was initiated by me. The more I used the card, the more the limit increased, obviously higher limits mean more interest charged. This is how they make money, but knowing my income, it was also very irresponsible.
At the beginning of the month when I paid the balance of a little under $500, I noticed that I only had $9,500 in available credit, which is a big drop from $20,000. I correctly assumed that it’s a case of “use it or lose it”, this was confirmed today when I received a letter from American Express saying due to my low usage over the past 12 months. they had decreased my credit limit by half of what it was previously.
It doesn’t affect us financially, as I barely use the AMEX, but what it does do is damage my credit score, as my overall credit card utilization percentage increased, as my total credit limit has been reduced by about 20% across all my credit cards. During a time, when we were less financially secure, leaning on credit cards to make ends meet, with balances increasing by hundreds of dollars monthly, AMEX was happy to give me more credit when we just cleared the minimum payment, which was 2/3 interest charges.
I’m annoyed because American Express has said, we are unable to make any significant money out of you, so we are going to penalize you for being a responsible credit card user. For all they knew I might have been about to pull the trigger on a large, say $12,000 purchase. That was not the case, having gotten out of significant debt, more than $60,000 just 18 months ago, I don’t plan on getting back into unmanageable debt, I’d much rather change our lifestyle than continue to support a lifestyle using credit.
I am now evaluating whether to keep the American Express card. Average monthly charges are $35, for Google Services and my children’s school meals which are automatically debited as needed. These could be easily switched to my Discover, meaning one less payment per month, albeit no less money going out.
The point I am making is that credit card companies need to be held accountable for their, in my opinion, irresponsible lending practices. Why would they automatically increase credit limits, when a customer is paying, just the minimum payment, which is made up mostly of interest charges? Clearly, the customer is struggling to pay the balance when minimum payments are being made, and overall balance increases.
The target of my ire is American Express because of their actions this month, but all credit card companies, basically rip off their customers, with increasing balances, minimum payments, and interest charges, forcing them into financial servitude. Never being able to pay off the balance, without a major financial windfall, like inheritance in my case, likely increasing limits to allow for more spending. This is wholly irresponsible lending, financial institutions need to be regulated better by our government.
But, this is the United States of America where bribing of elected officials is perfectly legal through ‘campaign donations’, meaning banks/lenders are allowed to use such practices and when it goes wrong, they are bailed out by the same people that they are ripping off, the credit card holder and taxpayer.