It happens to me frequently, and probably to you also. You have a perfectly good credit card with a $10,000 line, and after two good years of perfect payment history, the line gets increased. I have four credit cards with lines greater than $30,000.
I will never, ever use that kind of credit. First of all, interest rates are exorbitant. I might sneak in a balance transfer if it is convenient to pay out an insurance bill, but intellectually, I could not live with a 20% interest rate on $30,000. That amount about $496 a month in interest, plus another $833 per month to reduce the balance. Way too rich for my blood. I’d instead save and wait.
The Los Angeles Times carried a Bloomberg story about unsolicited credit line increases.
Subprime and near-prime customers got increases at a higher-than-average pace, according to the agency. That means many of the people getting boosts have blemished or limited histories of paying bills.
Says a cardholder: “It’s like putting a sandwich in front of me and I haven’t eaten all day. How can I not take a bite out of it?”
Whatever the case, the immediate result is clear: debt and lots of it. Outstanding card borrowing has surpassed its pre-crisis peak, reaching a record of $880 billion at the end of September, according to the latest data from the New York Fed’s consumer credit panel. That’s boosting profit at top lenders like Capital One, JPMorgan and Citigroup Inc. a decade after banks cut credit limits without warning during the crunch.
Now, here is my strategy. Don’t run up the card. Don’t tell your spouse about the line increase. Enjoy the fact that your FICO Score will benefit from the decreased line utilization.
In the soon-to-publish 2020 Mercator Advisory Credit Card Data book, you will see the new levels of contingent liability (Here is the 2019 report). Right now, credit card issuers have contingent liability for $4 trillion. That is almost four times the volume of outstanding debt in the U.S.
The funny thing about credit lines is that those who run them up should not get them; those that don’t use them don’t need them.
Overview by Brian Riley, Director, Credit Advisory Service at Mercator Advisory Group
