I have a friend who went through his own severe economic downturn several years ago. Disabled after an accident, unable to work and stuck with many, many medical bills, he slowly got rid of his debt, but not without a disastrous effect on his credit ratings. Things were so bad for him that at one time in his life, he cancelled all his credit cards. I encouraged him to at least get one card, in the hopes that if he were ever able to be able to fly or drive again, he would need a one. The way our world works, one really needs to have at least one credit card. The down side of cancelling your cards and not having good credit is that it becomes difficult to get another card.
Enter HSBC Bank, otherwise known to a different generation as Household Finance. After years of struggling, my friend was finally able to get himself on his feet, albeit slowly. He applied for a HSBC Platinum Card. He's had this card for about two years. He has never missed a payment, in fact, he pays his balance off and has never incurred interest expense. Because of his past financial problems, he checks his online balance twice a month and often, by the time he receives the hardcopy of HSBC's bill for his Platinum Card, the online balance is already zero.
When he first obtained the HSBC card, his credit limit was rather low, at about $500. Through his excellent and fastidious payment practices, as of the end of December, 2008 he worked his way up to a credit limit of $4,000. This was as a result of always paying on time and never being late, much less never incurring interest expense on his part.
You would think my friend should be rewarded for his fastidiousness. He has been penalized. He just called me and he was terribly angry and upset. He went to make an online purchase, only to have his $150 item declined. He went online to see if something was wrong with his account. It was. Without his knowledge, HSBC lowered his credit limit to some $300. He called them, since this had to be a mistake. He was told that a letter went out to many HSBC cardholders and their accounts were re-evaluated based on a number of factors. Since my friend has school loans, of which he has been making regular payments, and his income as a result of his medical problems is much lower, the only factors they could have used to justify penalizing him had to be low income and his school loans.
My friend has never missed a school loan payment and he has never missed a payment to HSBC. He only has one credit card, to HSBC. It's time he start looking for another card. When our economy needs people who can afford to make purchases and who pay their bills with no problem, having a credit card company make this impossible for someone based not on reality but some irrelevant formula does nothing to support spurring the economy. I'm sorry he didn't apply before HSBC arbitrarily reduced his credit limit by 90%, since surely this too, will impact his ability to get another credit card.