The credit crunch: Plastic cards are playing harder to get

The credit crunch is starting to hit consumers where it hurts — in their wallets.

As lenders tighten credit standards, many consumers have faced greater difficulty getting a mortgage or a home-equity loan or line of credit. Now, some are beginning to feel the squeeze on their credit cards — despite the dramatic cuts the Federal Reserve recently made in its benchmark Fed funds rate, including last week's half-percentage point cut to 3 percent.

Big card issuers such as Citigroup Inc. are requiring higher credit scores before issuing new cards, particularly in states that have been hit hard by the housing downturn, including California, Arizona and Florida. Some lenders, including Bank of America Corp., are offering lower initial credit lines.

Other lenders, such as Capital One Financial Corp., are limiting credit-line increases or reducing credit lines for existing customers if they see signs that they are suddenly applying for more credit or are having trouble paying down their balances. And many card issuers are raising late fees and other charges to help offset what they see as higher risk.

The stricter lending standards come as many banks recently reported earnings and disclosed surprisingly large losses from their consumer businesses. Among the problems: higher credit-card delinquencies and losses. The banks expect the problems to get worse as the economy slows.

A new survey of senior bank-lending officers, released Monday by the Federal Reserve, found that of 41 banks, four, or 10 percent, said they have tightened standards for approving credit-card applications from individuals in the past three months. That's up from 5 percent in a survey conducted in October.

Enrique Colon, a 35-year-old recruiting manager in Fredericksburg, Va., says he got a letter from American Express Co. last month notifying him that it had canceled a payment feature on his One from American Express card that allowed him to carry a balance from month to month. The letter cited factors such as credit delinquencies and recent credit inquiries for the change, which now requires him to pay off any balance in full every month, he says.

According to Colon, most of the reasons cited weren't valid: He hasn't recently applied for new credit and has never been late in his payments with American Express, he says.

While an American Express spokeswoman says the company couldn't comment on a specific individual's case, she says in a select number of cases, revoking a customer's ability to carry a balance could be an action that it might take based on that customer's "risk factors."