Less Power to Purchase

In March, American Express slashed her limit to $1,400, she said.

"I was paying over and beyond what they even asked me and that was why I was so shocked that they did this," she said. "I thought, 'What the hell? I've been a good customer. Doesn't that mean anything?' "

Gonzalez of American Express said that in a typical year, fewer than 20 percent of its customers have their lines adjusted. Of that proportion, 80 percent usually have credit increases, while 20 percent have decreases. In mid-2007, that shifted to a 50-50 ratio.

American Express is by no means the only lender to take such actions. Bank of America, Citi and Discover are among the major issuers who said they have done so as well. In the Federal Reserve survey, 20 percent of domestic banks reported having reduced credit limits for existing prime, or credit-worthy, borrowers. About 60 percent said they have cut limits for existing nonprime borrowers, and none reported raising lines for those customers.

Many card companies have had weak earnings, which they are responding to by raising interest rates on some borrowers, even as the Federal Reserve has slashed the federal funds rate.

According to CardRatings.com's database of credit card offers, the average interest rate was 13.8 percent on Nov. 4, up slightly from 13.75 percent on Oct. 15. That is a 1.27 percentage point decline from the average rate of 15.07 percent in the third quarter of last year. But given that the Fed has cut rates by a total of 3.25 percentage points (excluding the most recent cut of 0.5 percent late last month, which will probably not move card rates for a while), "clearly consumers haven't benefited from most of the rate cuts in the past year or so," said Arnold of CardRatings.com.

Most major banks base the annual percentage rates on their variable rate cards, which make up the majority of credit cards, on the prime rate, which is pegged to the federal funds rate. But how much and how soon they cut rates after a Federal Reserve action is up to them. And many have rate floors, or minimum rates they will charge, analysts and watchdogs said.

"Many Chase customers have variable rates and for those customers, when a change is made to the prime rate, they may see their rate decrease or increase," said Jacobson of Chase Card Services.

But she said, "we may raise APRs and/or lower lines for customers who are showing signs of increased risk or inactivity." The opposite is also true, she said.

American Express started sending letters to customers this month, notifying them that rates on some cards would increase by 2 or 3 percentage points in December. "We're in a difficult economic environment with weaker credit quality among consumers and small businesses," said Desiree Fish, vice president of public affairs for the company.

But the Federal Reserve might step in to more closely monitor rate increases and other industry practices that consumers have long complained about. Congress has also proposed tighter regulations of the industry. President-elect Barack Obama said on the campaign trail that he supports credit card reforms.

In the meantime, borrowers should closely monitor their credit cards and credit reports, consumer advocates said.

First and foremost, pay your bills on time, not just on your credit cards but on all your debts. That means not falling behind on your mortgages or student loans. "You need to do everything you possibly can to keep your credit score as high as possible," said Bill Hardekopf, chief executive of LowCards.com.

Also keep your debt utilization as low as you can. If you want to avoid having your account shut, use your card every once in a while but pay it off right away. Make sure you check what fees you will be paying for certain transactions such as balance transfers. And keep a close watch on your credit limit.

"If that goes down, you stand the risk of really incurring fees," Hardekopf said. "You could blow by your limit and once you do that, not only will you instantly get an over-the-limit fee, but then you will most likely get hit with an APR increase, so that the cycle continues."