{ 14 comments… read them below or add one }

Eric June 18, 2009 at 10:53 pm

AskMrCreditCard just recently put up a blog post about this. Hope you find another worthy card!

Brett June 18, 2009 at 10:55 pm

I had the same problem with Advanta. What a pain especially with short notice. I posted the letter on my flickr account if any of your readers are interested in seeing the form letter they sent out. (Saw your post via Twitter)

Silicon Valley Blogger June 19, 2009 at 12:41 am

About Mr CC, that’s interesting! I’m going on blog talk radio with him next week. Maybe we can talk about it then! :) I’ll check out his post on this.

Brett, I was going to post our form letter too, but I think my husband threw it away (ha, we were so miffed, we just crumpled and rolled it into a ball and tossed it)! Oh well, yours will do! Thanks so much for giving us the scoop on the letter.

Doctor S June 19, 2009 at 3:26 am

I dont think you mentioned this in the post, I re-read just to make sure, but did you have a balance outstanding with them when they closed? If so, how did that work?

Manshu June 19, 2009 at 4:18 am

How is a small business owner credit card different from other credit cards?

Jill June 20, 2009 at 4:28 am

I had never thought about credit card companies going under. But it makes sense. I knew some of those companies were in trouble.

That is going to effect a lot of small businesses. I know of someone that went bankrupt 20 years ago. They had a toy shop and their credit was pulled right before christmas and they were not able to stock up. It had been profitable for the last several years but alot of that profit came during the holiday season.

If multiple cc companies falter this could have a pretty large effect on small businesses.

DSS June 20, 2009 at 5:14 am

I’ve had a Capital One credit card for years. Paid it off monthly, had a real good rate and they sent me a note – went up to 29%. Guess I wasn’t profitable enough for their either. It’s okay because I don’t carry a balance but I would sure hate it if I did.

Shawanda June 20, 2009 at 2:42 pm

Citibank sent me a notice at the end of last year stating that they were going to close my account due to inactivity. I called them up and canceled the card myself. That wasn’t a good idea. My Citibank card was my second oldest credit account. Canceling the card caused my credit score to drop 12 points. The FICO scoring model doesn’t care who closes the account. If I knew then what I know now, I would’ve just charged a pack of gum to keep the account open.

kitty June 20, 2009 at 4:20 pm

I wouldn’t jump around for joy over the new regulations, especially the restriction on raising rates.
This bill does nothing for people who pay in full every month, it only helps those who carry balances. Temporarily. But with the default rate of 12% and climbing, and inability to raise rates to compensate for extra risk, the cards will simply a) deny cards to many of those people who actually are now shouting from joy b) start with higher rate upfront c) reduce the number of perks d) introduce additional fees such as annual fee and/or reduce or eliminate grace period. As usual the bill is meant to bail out irresponsible borrowers at the expense of responsible card users.

As to interest rates, do a little math. Imagine you lend $1000 to 10 people at $100 each, and 10% of people or 1 person out of 10 will default. How much will you need to charge the other 9 just to get your money back? But 12% is average default rate, which means that in some subgroups the rate of defaults may be lower and in others it may be as high as 20% or even higher. But if 2 out of your 8 borrowers default, how much would you need to charge the other 8 to get back your $200 lost?

But that assumes that the cost of money to you is $0 and you lend everything. But banks get most money for lending from your deposits, so there is some interest they pay, so you have to add that. Banks also don’t lend all the money, they put some of it – normally 10% but in current environment much more – in reserve. Then there are operational expenses like employees salaries, rent, taxes. No business operates without profit, so there has to be some profit too. So the interest charged has to a) cover the losses b) cover interest payments on deposits including money placed in reserve – the higher the amount you put in reserve, the more interest you need on the money you do lend c) cover business expenses d) cover money given to those who don’t bring profit i.e. those that pay in full e) bring profit. When you factor all of that in, the interest charged doesn’t seem that high, does it? Imagine you own a bank and try to calculate how much interest you’d want to charge with different rates of defaults.

Chris June 22, 2009 at 9:43 am

I just stopped by BofA on Friday and they do have a business credit card as well. I am not sure where you have your account but all of your major banking centers should have a business credit card for you to use.

For the person who had their Capital One card rate raised, you are correct, you are not a profitable customer for them. Capital One was designed around revolvers, those who maintain balances, not those who pay it off every month. When you call, and they pull up your account, it tells the CS rep right away whether you are profitable or not, which tells them which options they have for dealing with you.

Silicon Valley Blogger June 23, 2009 at 4:01 pm

Let me try to answer a few questions made here.

@Doctor S: No, I did not have an outstanding balance with Advanta, but I believe that for those who did, Advanta simply left the balance in place, allowing the cardholders to pay it off over time. You just couldn’t make new purchases on the card. The question is, I wonder if this type of account closing will affect my credit score. My guess is that it will, just as if I did the card cancellation myself (as per Shawanda).

@Manshu: Your question is fodder for a new post I’m concocting! :) You asked “what’s the difference between business and personal credit cards”. In short, business cards allow you higher credit limits, different perks (focusing on business) and the ability to separate credit liability from that of your personal account.

If anyone else has points on these matters, drop us a line!

Josh July 20, 2009 at 2:19 pm

One thing I find interesting is this new law has a part “Credit can only be extended to people under 21 if they can prove that they can pay off their debt or if they’ve got a parent or guardian co-signer. ”

At 18 you are an adult and can enter a contract. Between 18-21 you would be asked to prove or provide additional information that someone older then you would not have to prove. How can this be legal? I really hope someone challenges this section of the law. Seems like age discrimination to me….or am I making too much of it?

Toms River August 24, 2009 at 1:04 pm

I’d have to agree that it appears to be age discrimination, but I’m not well enough informed to say whether it is right or wrong.

Calvin White March 16, 2010 at 5:35 am

I have received a letter from Shell that they will close my account on the 18th of the month because of a credit bureau report. My account has always been current. I am just mystified by this.

Thanks very much,
Calvin White

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