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As the credit crunch deepens, many credit card issuers are collapsing cardholders' credit lines to minimize the risk of further losses, but they are not switching into panic mode, analysts say. "Credit card issuers are not dramatically changing their underwriting strategies, but instead they are making adjustments," Rajiv Shah, a partner in the financial practice of A.T. Kearney Inc., a New York-based consultancy, tells CardLine. Card issuers are reducing many cardholders' unused credit lines to limit future loss exposure, but they are doing it with "a razor focus" instead of slashing credit lines across the board, he notes. Brian Riley, research director at Needham, Mass.-based TowerGroup Inc., an independent research firm owned by MasterCard Worldwide, tells CardLine that cutting off credit to the wrong customers is risky business. "As soon as you kill a customer's credit line, the customer loses interest and begins to look elsewhere for another card that will extend credit to them," he says. "An issuer that cuts off credit to all customers above a certain level is acting like a bull in a china shop and probably will lose valuable customers." Riley advises issuers to use payment history to determine whether a cardholder is at risk of defaulting on a card. If a cardholder begins using a credit card primarily to pay for groceries and household bills, it could be a sign of pending default that should trigger close monitoring of credit limits, he says. "Most issuers right now are working hard to find the right balance between constraining cardholders' credit limits at safe levels but keeping them interested in using their cards," Riley says.
