The End of Easy Credit

Thursday, November 6, 2008; Page D02

The election may be over, but having a new president won't put an end to the recessionary issues affecting this economy.

Just consider the recent Federal Reserve report that found that lending is tight and probably going to get tighter.

About 85 percent of domestic banks -- up substantially from 60 percent in July -- reported having tougher lending standards for large and middle-market business loans, according to the Federal Reserve's Senior Loan Officer Opinion Survey on Bank Lending Practices. About 75 percent of banks tightened their lending standards for small firms over the same period.

As for consumers, don't count on swiping those credit cards as much. Nearly 60 percent of banks responding to the Fed survey said they had strengthened standards for existing credit card customers. And about 60 percent of bank respondents reported cutbacks on credit card accounts granted to customers who did not meet their credit-score thresholds.

You would expect banks to be cutting or lowering credit to nonprime borrowers or those at risk of not paying their bills, as 60 percent of institutions reported. But 20 percent of all domestic banks reported having reduced credit limits on existing credit card accounts to prime borrowers.

Half of domestic banks indicated that they had become either somewhat or much less willing over the past three months to make consumer installment loans, up from 35 percent in the July survey and the largest percentage in more than two decades.

About 95 percent of banks that had reduced limits cited "a less favorable or more uncertain economic outlook and reduced tolerance for risk as reasons for the action," the Fed said.

While the banks are reducing their risk, as a credit user you, too, should be proactive. The challenge is to manage what credit you have left.

The repercussions of a lower limit can trigger a reduction in your credit score. That's because if you continue charging and you aren't aware that your limit has dropped, you may max out your credit card or go over your credit limit. Those two incidents factor negatively on your credit score.

Here's what you need to do to make sure the tightening lending standards don't erode your good credit standing or further damage an already troubled credit history:

ยท Check the credit limits on all your cards. By law, the companies can lower your limit. But they have to give you notice. The problem is that consumers often miss the notification. Either go back through your statements or call each issuer to verify your limits.

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