December 31, 2008
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News: Use-It-or-lose-It Credit Cards.
Unused or ‘dormant' credit cards are under attack. Already tens of millions have been put to sleep – permanently. Discover -- 3 million so far with another 2 million scheduled, Bank of America, Chase, Citibank and Capital One are just a few of the participants. If your credit card hasn't been used in 12 months, there's a good chance that you're on someone's list and are unaware. Does this matter very much? Well, yeah…if you're going to rely on having good credit cards available during the dry season (credit-dry).
Many good and responsible consumers like to keep a spare credit card as an emergency precaution while, at the same time, staying out of debt. Sounds good so far. Financially stable. Here's the problem: There are those who walk among us who abuse the system and then find themselves unable to make their payments. Many will never pay (‘charge-offs'). These people not only hurt themselves but, they hurt those around them as well. With this ‘uncollectible' rate expected to reach as much as 10% by 2010, the poor credit card lenders are in a pickle. It's not that people have become dishonest, it's that more people have become unemployed.
This causes major problems at the bank. In order to eat these losses, credit card lenders are having to report multi-billion dollar losses on their quarterly reports. This has caused their corporate stocks to seriously plummet on Wall Street by double digits. Since most of the charge-offs are already ‘sunk costs', they must restore public confidence in any ways they can. While trying to impact their customers the least, they've held back on going crazy with higher interest and annual fees, they deemed that cutting out unused cards would have the least impact for stage 1. The reason this helps the banks is that the total amount of credit they have extended is greatly reduced without losing active customers. If they close a $10,000 account that is never used, the lenders themselves have less risk but don't lose any revenue. It they lose a $10,000 active account, they lose the revenue from that account.