The New York Times today reports that credit card companies are offering fewer lines of credit, shrinking ones that do exist and putting more restrictions on customers. It could be bad news for business owners--already reeling from the bank-loan drought--who need to find short-term solutions for payroll and holiday inventory costs.
The credit card pullback follows Wall Street's financial crisis and the comatose lines of credit that connect the country's banking system. The Times reports that credit card companies have already walked away from nearly $21 billion in unpaid debt so far this year.
American Express is reportedly raising its lending standards while Capital One is slashing some customers' credit lines.
While many entrepreneurs rely on revolving credit and charge cards, the firm comScore this week released data showing that the number of credit card applications is down six percent compared to a year ago.
The number is consistent with a reduction in credit card offers. Mintel Comperemedia states that "mail volume for credit cards fell nearly 8 percent" between the first and second quarters of 2008. Discover and Citibank alone have cut their mail by 18 and 31 percent, respectively, according to Mintel.
"Undoubtedly, this is a symptom of the global credit crunch," says Lisa Hronek, senior analyst at Mintel. "Record losses from the subprime fallout and rising delinquencies have squeezed issuers' credit so tight, they're tapping out. Add that to the fact that consumers' credit is already stretched and you're left with a tough market for credit card issuers."