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One of the attractions of credit and charge cards is that users can shop comfortably in the knowledge that if they spot something that takes their fancy they can whip out their card and just buy it.
So it was with more than a little annoyance when one holder of an American Express card had their card transaction refused when they were trying to make a purchase in a shop.
This Amex user was particularly surprised because he knew he was well within his credit limit and that, on paper at least, he should have been deemed an exemplary card user. He had held his card for two years, regularly spent sizeable sums on it and always paid off the balance in full at the end of each month.
When he contacted American Express, he was told that his credit limit had been reduced from £9,000 down to £6,000.
American Express says it has been reviewing the credit limits of many of its customers and says that some have had their credit limits reduced although it declines to reveal how many. It insists that card users were informed ahead of any changes but concedes that some card users, including our reader, were not informed.
Card issuers are well within their rights to review credit limits from time to time and increase – or reduce – them, depending on their view of the creditworthiness of their card users. In the case of Amex, it says it looks at a number of factors including other outstanding loans and mortgages, an individual’s credit score and other cards held.
Indeed some other card issuers are taking similar steps following the rise in individual voluntary arrangements (IVAs). Since the beginning of 2005, for example, Barclaycard says it has reduced the credit limits on the cards of 330,000 of its cardholders.
But there are good and bad ways of doing this. Making such changes without informing your customers first is clearly a bad way. You would also expect any cuts to credit limits to be aimed at less wealthy customers. But this does not appear to be the case with our reader who owns several credit cards and runs a number of multimillion pound businesess. You have to wonder how accurate the credit-scoring methods of the big credit card companies really are.