How the Economy Affects Credit Card Companies

Itís no surprise that rising unemployment, home foreclosures and instability in the stock market can take a toll on consumersí bank accounts and, as a result, may challenge them to stay on top of their finances. In particular, people may have difficulty keeping up with their bills, such as their rent or mortgage payments, car payments and credit card bills.

When people are late with their payments or skip them altogether, it has a direct effect on their lender. For example, when people do not pay their credit card payments their credit card issuer has fewer funds on hand to extend loans to others. When people do not pay their credit card bills at all, the card issuers may never recover the money they lent, again affecting the amount of money available to lend to others. Not only does this hurt other consumers, but the credit card company loses money when it writes off the bad debt. This can be especially problematic during an economic downturn or a recession, when it is more important than ever that card companies are sufficiently funded to continue to extend credit to the people who need it most.

With fewer payments coming in on time or at all, credit card companies must ensure that they have enough funds on hand to constantly provide loans and also make up for their financial losses. They do this by taking different approaches to protect their financial health Ė and their ability to continue to lend money. Among them, they may increase interest rates and fees and lower credit limits for certain cardmembers.

It is important to note that the new Credit Card Accountability Responsibility and Disclosure (CARD) Act has significantly changed the disclosures card companies must provide regarding the terms of your account and limits certain credit card practices such as the ability of card companies to increase rates on existing balances. For more information on the changes that may affect you, please click here .

Be sure to always read all communications from your credit card company so that you are aware of changes that could affect your account. Call your credit card companyís toll-free number if you have any questions.

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