Egg’s move to withdraw credit from seven percent of its customer base - a total of 161,000 people - serves as a stark reminder of the severity of the credit crunch, and how it is impacting the man and woman on the street.
A quick ring-around other main players in the credit card market - Barclaycard, MBNA, Halifax and Capital One included - did not uncover any other plans to mass-close accounts. But few can deny that the liquidity crisis is continuing to have an impact on consumers.
One in 100 card holders have had their cards cancelled, according to a recent poll by personal finance Web site Fool.co.uk, and by all accounts lenders are continuing to tighten up their lending criteria for riskier customers. Barclaycard has reduced the credit limit of “some people who are over-indebted” and put a stop to cash withdrawals for “those showing signs of distress”, while the Halifax says it is tightening the reins on those exceeding their credit limit and missing monthly repayments - something, a spokesman says, the company has always done.
While that will make black marks on your credit rating, there is some solace for those who have the door closed on their spending on plastic. Cancellation of a credit card will not have a detrimental impact on borrowers’ credit ratings. Instead, this will show up as a “settled” account once any outstanding balance has been cleared (and Egg is not asking for immediate payment of accounts) - exactly the same as if they had cancelled the card themselves.
“Lenders can’t see which organisation issued any cards you have currently or have had in the past or why an account has been closed,” says James Jones, consumer education manager at credit reference agency Experian. “They all make their own decisions on whether they want to grant credit or a credit card, based on credit reference agency information and other information provided by applicants.
“In fact, depending on the circumstances of the individual and policies of the lender, it could have a positive effect on your credit rating, as a lender might view an application from someone with a lower number of cards as more attractive.” Every cloud has its silver lining.
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6 comments so far
Interesting article. More so because of the latest infusion of approx. 70 billion by the Fed to major U.S. banks. Not covered by the major netwwoks in the U.S.A., this is significant, because of other recent infusions to major banks in the billions of dollars indicate that the American banks don’t have any ,,,,,,,,,money. Plenty of shaky mortgages, but cash on hand very little. Maybe the worst economic times on the horizon since the 1930’s, thanks mortgage broker industry-good sites to keep in your back pocket….Natl Foundation Credit Counselors, non profit, http://www.nfcc.org http://www.answersfordebt.com web book.
- Posted by Jerome CirrincioneThere are some interesting comments on the BBC website regarding this story. To summarize, it appears that the customers who egg are dumping may not be the risky customers at all, but the unprofitable.
- Posted by MarkPerhaps it`s a good thing that lenders in general are being more cautious. If they`d been that way in the past many of the financial difficulties for both they and their customers might have been avoided.
- Posted by PaulIt’s definitely the customers who are using their credit cards to their advantage that are being dumped. If Egg told the truth and said that they were keeping the ones that max out and have to pay lots of interest then there would be uproar and allegation of them acting unethically/immorally. Share holders need their dividends and they don’t get that from someone who pays off their bill in full each month.
- Posted by LibbyAs an egg customer who prefers to keep a positive balance,to receive their interest,I am a little surprised they havnt droped me as a customer if they want unprofitable customers.
- Posted by DAVIDDavid
The money in your account is earning them more while it is there than what they are paying you in interest. They are still making money out of you.
- Posted by Libby