Posted by: John Tozzi on August 21, 2009
Don’t miss this AP story about how credit card companies have reduced the limits for 58 million cardholders with little regard to their credit scores.
The conclusion is based on a study by FICO, the Here’s the key point for small business owners:
[Consumers Union attorney Gail] Hillebrand said one group that was hurt by limit cuts but has gotten little attention was small business owners who used their personal cards to fund their companies. In some cases, the cuts created cash-flow problems, she said.
Credit cards were a fallback for a lot of business owners ho couldn’t get bank lines of credit. Now card companies have spent a year reducing credit limits, often with no relation to the risk the borrower actually poses. So if you’re one of the 58 million people who has had credit reduced, has it affected your business? What have you done in response?
The full PDF of the analysis by FICO, which I’m still going through, is here. One important side note: Since your credit rating is calculated in part by the amount of available credit you utilize, when a card issuer cuts your limit it can also damage your credit score, through no action of your own. My colleague Prashant Gopal covered this back in June. Read his story here.
Update: The PDF actually doesn’t have much about the number of credit lines cut, it’s more focused on how FICO scores were affected. But FICO’s release has a good summary of the numbers.