Ironically, buying big ticket items on credit is not the type of thing that is going to make credit card companies cut you off. Want to purchase a big screen TV? Go right ahead. Taking a vacation to Europe? Charge to your heart's content. But if you use a credit card for a $4 prescription, you may have a problem.
Credit card companies have a great deal of leeway when it comes to changing the terms they use when you borrow money. They can increase your interest rate, reduce your spending limit, or even cancel your account. Any or all of these can be devastating if you have lost your job or have unexpected bills.
Recently, American Express began sending letters to many of its clients placing new spending limits on cards and changing the terms under which they lend. And for the first time, Amex is looking at what you buy before making a determination about your credit worthiness.
Amex is not alone. Many of the largest credit card companies in this country have had similar policies in place for some time. And although the policies are severely flawed, lenders are so scared that they don't seem to care.
So if you have been thinking about paying cash for all of your Christmas presents because you don't want to run up a big debt next year, you may want to think twice. If your plan means that you have to place small, everyday purchases on your card - purchase that you will pay off in one or two payments - there is a real chance that your strategy could backfire. It could cost you money in the form of higher interest rates, and it could mean that unused portions of your credit limit simply disappear.
Jim Malmberg
Credit card companies have a great deal of leeway when it comes to changing the terms they use when you borrow money. They can increase your interest rate, reduce your spending limit, or even cancel your account. Any or all of these can be devastating if you have lost your job or have unexpected bills.
Recently, American Express began sending letters to many of its clients placing new spending limits on cards and changing the terms under which they lend. And for the first time, Amex is looking at what you buy before making a determination about your credit worthiness.
Amex is not alone. Many of the largest credit card companies in this country have had similar policies in place for some time. And although the policies are severely flawed, lenders are so scared that they don't seem to care.
So if you have been thinking about paying cash for all of your Christmas presents because you don't want to run up a big debt next year, you may want to think twice. If your plan means that you have to place small, everyday purchases on your card - purchase that you will pay off in one or two payments - there is a real chance that your strategy could backfire. It could cost you money in the form of higher interest rates, and it could mean that unused portions of your credit limit simply disappear.
Jim Malmberg
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