Credit Card Issuers Tighten Standards

Credit card companies may be getting a bit stingier about the amount of credit they're willing to offer.

Experts say some companies are deciding to require that new potential customers have Fair IsaacFIC, or FICO, credit scores of around 20 to 40 points higher, for example.

Others are scaling back on the amount of credit they're offering -- say, to $4,000 in cases whereas a line of $5,000 had always been the routine. Some have cut down on mailed advertisements.

Not everyone is feeling such changes. Companies are more likely to tweak their standards when dealing with new customers than they are with existing ones, particularly those who have always paid bills on time. Lenders that have been more conservative all along might have decided to stay the course.

Even those who are adjusting their tolerance for risk are typically targeting certain populations, such as borrowers who have poor credit histories and live in housing-market bubble spots like Phoenix, Southern California or Florida.

Robert Hammer, chief executive of the bank card advisory firm R.K. Hammer, estimates that credit card companies approve applicants at a rate of around 32%, compared with 40% a year ago.

"I definitely think it's harder (to get credit card debt) now," says Curtis Arnold, founder of U.S. Citizens for Fair Credit Card Terms, Inc., which is associated with the Web site CardRatings.com. "I wouldn't say a lot harder."

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This is happening as the fallout from the mortgage crisis continues to ripple through the economy, sparking concerns about the risk of missed or failed credit card payments.

When the Federal Reserve's January 2008 Senior Loan Officer Opinion Survey on Bank Lending Practices asked 41 banks how their credit standards have changed for approving credit card applications from individuals, one large bank said it had "tightened considerably," and three others, including one in the large category, said they had "tightened somewhat." The percentage of banks that had tightened at least somewhat had grown to 10% from 3% in the same survey for October.

Some have been more cautious for longer than a few months.

Discover Financial ServicesDFS has been ramping up its analytical staff and data mining capabilities during the past two or three years in an effort to heighten its evaluation of risk.

Even before the noise began to surface about the mortgage market, the Riverwoods, Ill.-based company was screening for the risks of lending to people in areas such as Arizona, Nevada, California and Florida. Discover was also more careful about whom it gave credit to in Michigan and Ohio because the travails in the auto industry had hit those areas.

Discover keeps track of variables ranging from whether you have a high-risk mortgage to your FICO score.

"We continue to fine-tune and analyze our base," says James Panzarino, chief credit risk officer at Discover. "It doesn't mean that we're just tightening credit -- there's still a large population of individuals that we want to grow healthy balances with and who are still credit eligible."

Other credit card companies have announced in recent months that they're not lending as easily anymore. On Feb. 6, American Express'AXP chief executive Ken Chenault said at a financial community meeting that the New York company would implement "targeted (credit) line reductions for specific segments" representing the greatest risk, including consumers holding subprime mortgages and small businesses operating in industries like home building or construction.

American Express was also adjusting for the higher probability of unrepaid debt during a weaker economy, and in geographies impacted by home-price declines.