Card companies penalize good customers

You know what people always say when they complain that the credit card company slashed their credit limit: I've never missed a payment or been late.

Quite likely, a new study shows, they aren't lying.

The study by FICO, originators of the FICO credit score, found that of the 33 million people whose credit limits were reduced between October and April, 24 million had no new marks against them in their credit reports that would prompt a card issuer to tighten the reins.

Also, reports Pamela Yip of The Dallas Morning News, "Those cardholders generally had low balances, didn't use up a lot of their available credit, had very few -- if any -- reports of missed payments, and had a long credit history." 

In fact, the median credit score of these responsible folks was a very decent 760, said Washington Post columnist Michelle Singletary, who also explains what happens if you get mad at the card company and close your account.

The remaining 9 million or so whose credit limits were reduced had done something like make a late payment -- the kind of stuff we're told we should never do if we want to maintain a stellar credit score.

What happened to consumers' credit scores after credit limits were reduced? We already know that if the amount you owe on your cards each month is close to your credit limit, that's going to hurt your score. To find out specifics, FICO examined the impact on the credit scores of the blameless 24 million.

• Scores dropped for 8.5 million people, generally "well under" 20 points, FICO said.
• Scores remained pretty much the same for 3.5 million.
• Scores rose for 12 million.

How could that be? Even though the average credit reduction was $5,100, that represented only 14% of the average total revolving credit of these folks. In other words, they had credit to spare.

So why did the credit card issuers penalize responsible people (and a lower credit limit is only one of the ways credit card companies have shanghaied customers in the last year)? A statement by FICO CEO Mark Greene sheds some light on the answer: "Our study suggests that lenders are using a scalpel and not a hatchet to trim their revolving credit exposure and meet their requirements for regulatory capital."

The next time you call the card company to ask why your credit was reduced or your minimum payment was raised, rather than telling you it's because of something in your credit report, the customer service rep should simply say, "Because we can."

Related reading:

• Credit card holders unduly whacked?
• Weird stuff that hurts your credit
• Perfect credit? You don't need it