4 ms·

> They are usually unsecured, which means lenders have little recourse if a borrower stops paying This is misleading. Yes, unsecured credit cards (there also

> They are usually unsecured, which means lenders have little recourse if a borrower stops paying This is misleading. Yes, unsecured credit cards (there also exists secured credit cards which do have an attached collateral) do not have a collateral but stating "lenders have little recourse" is false. They can collect the debt and make your life a living hell just like the hospital you went to to address your injured elbow charged you $25k for and hounds you to this day, garnishing your wages and putting liens on your property. > Banks including Citigroup Inc., Discover and Synchrony are shutting down credit cards that haven’t been used in a while or lowering spending limits. The companies say they were taking these measures before the pandemic as a way to lessen risk. But those moves could also leave some borrowers without access to credit just when they need it most. This is more concerning. Since a certain class of borrowers are being unable to honor their obligations, other class of borrowers who had opened credit lines, planning ahead, to tap into exactly during such times will now be left without access to that what they had planned for in the past. This now puts a short squeeze on people who could plow through these hard times and puts them at risk of falling into the class of people who are in absolute duress. Does not do good to any one. I would rather have the lenders continue to keep the accounts for borrowers with excellent credit history open and unaffacted.

MattGaiser 6y ago
> I would rather have the lenders continue to keep the accounts for borrowers with excellent credit history open and unaffacted. Except credit score is not indicative of risk in this situation. Entire categories of jobs no longer exist so everyone who is a waiter is now a major risk.
- subhobroto 6y ago
  > Except credit score is not indicative of risk in this situation True, but the credit history (not score) is a good proxy of the willingness for the borrower to settle their debt once the situation improves.
  - MattGaiser 6y ago
    > once The recession taught financial institutions that for many people, especially older ones, that is an "if" in many cases. But your point is well taken. However when I worked for a financial institution, the history was not really considered. It was assumed to be factored into the score.
    - subhobroto 6y ago
      > when I worked for a financial institution, the history was not really considered. It was assumed to be factored into the score I would appreciate the specifics. You can email them to me if you want. Handle at gmail. In my personal experience, the history is absolutely considered when the risk to lender is high. $50k unsecured loan? Sure. 780+ score? Good to go. When I apply for a $250k loan from a lender with billions of dollars in reserve, they look at cashflow and the score. If I have a 780+ score on the day they pulled the score, I qualify for preferred rates. When I apply for a $250k loan from a local credit union with a few million in reserve, they look at income and the history. Even if managed to have a 780+ score on the day they pulled the score, my little games from 90 days before to game the FICO model draws scrutiny and my rates are normalized to rates sans if I didn't play those games (which I dont anymore because the local credit union has the best deal always).
techsupporter 6y ago
Credit issuers, particularly unsecured credit card issuers, have been calling back lines every time there's even a whiff of an economic downturn since time immemorial. Those who "play the credit card game" have learned, usually through burned hands, to anticipate this. There's no such thing as a reliable limit through a big issuer. This is doubly true if someone has been chasing CLIs through "luv" (getting credit limit increases by clicking the "request limit increase" button on issuer web sites, often called the "luv button"). The only reliably stable limits are through small issuers who have much tighter rules and a much less intricate risk model. Also, on this: > other class of borrowers who had opened credit lines, planning ahead, to tap into exactly during such times will now be left without access to that what they had planned for in the past. > This now puts a short squeeze on people who could plow through these hard times and puts them at risk All I can say is absolutely do not rely on credit being there as a backstop. That's what cash savings are for. Yes, it's easy for me to say "just save six months of expenses!" and I'm not trying to call you wrong, so much as get a head start on the next class in the School of Hard Economic Knocks. The only people who can rely on credit being there are people like that ex-Amazon engineer whose tweet I've been seeing passed around these past couple of weeks. He pulled $250k out of a HELOC on some investment property in Seattle he's been trying to sell, "just to have the cash." He likely already has so much cash or short-term equivalents to his name, that added $250k is less out of need and more out of strategy. That class of investor will always have credit available; most of the rest of us will see it pulled at the worst possible time.
- subhobroto 6y ago
  The amount of insight and knowledge in your comment is so dense that my single upvote does not do it justice. My thoughts: > Credit issuers, particularly unsecured credit card issuers, have been calling back lines every time there's even a whiff of an economic downturn since time immemorial I have an aggregate mid six figure credit line excluding mortgages. Have been through this and the last two recessions. Never had a $1 drop in CL: I choose who I build realtionships with very closely. Infact, I have had CLIs happen during "good times", without me reaching out . One lender even did a CLI without even notifying me (they usually email or mail you "good news!") - the only reason I noticed is because I like to look at my statements manually every billing period. There is no Bank of America, Citibank or any of that retail nonsense in my basket of credit mix. Majority of them are in geographically diversified credit unions Finance 101. > absolutely do not rely on credit being there as a backstop. That's what cash savings are for cash is an asset class but it's extremely expensive and a liability for me. cash causes me headaches. Even with my 3% APY bank accounts (people seem to believe there are none of them in the US which is untrue!) after effort and inflation, I barely break even. I have to track it, protect it try and ensure it does not loose value too much. I have to visit local branches when I need to take it out or deposit it. Credit is awesome. In the U.S., it's really cheap and consumer lines of credit have extremely strong protections. I purchased a $500 phone from Best Buy because they had a special promotion that required me to purchase their gift cards. They would not allow me to purchase gift cards using my premier credit card, so I used cash. A year later, the phone died. I had 0 recourse. Had I purchased it with my Amex, all I would have to pay is a $50 processing fee, if at that. I would, at worst, get refunded by Amex, the fair value of the phone at that time. In my few interactions with Amex, I wouldn't be surprised if they just credited me $500.
lotsofpulp 6y ago
>Since a certain class of borrowers are being unable to honor their obligations, other class of borrowers who had opened credit lines, planning ahead, to tap into exactly during such times will now be left without access to that what they had planned for in the past. If you’re planning ahead consists of opening up credit lines via credit cards for your household finances, then you’re going to have a bad time. Credit from credit cards can be revoked at any time, and it makes no sense that credit card companies would be willing to lend in riskier markets.
- subhobroto 6y ago
  > If you’re planning ahead consists of opening up credit lines via credit cards for your household finances, then you’re going to have a bad time If that's the exclusive and only back up, yes. A financialy savvy person will mix both credit and debt classes for their situation. There is no one true answer in engineering and this is financial engineering. If you dont drive a car, you probably won't die in a car crash. However, you're less likely to get exposed to opportunities than a person who does drive a car.

MattGaiser 6y ago

> I would rather have the lenders continue to keep the accounts for borrowers with excellent credit history open and unaffacted. Except credit score is not indicative of risk in this situation. Entire categories of jobs no longer exist so everyone who is a waiter is now a major risk.

subhobroto 6y ago
> Except credit score is not indicative of risk in this situation True, but the credit history (not score) is a good proxy of the willingness for the borrower to settle their debt once the situation improves.
- MattGaiser 6y ago
  > once The recession taught financial institutions that for many people, especially older ones, that is an "if" in many cases. But your point is well taken. However when I worked for a financial institution, the history was not really considered. It was assumed to be factored into the score.
  - subhobroto 6y ago
    > when I worked for a financial institution, the history was not really considered. It was assumed to be factored into the score I would appreciate the specifics. You can email them to me if you want. Handle at gmail. In my personal experience, the history is absolutely considered when the risk to lender is high. $50k unsecured loan? Sure. 780+ score? Good to go. When I apply for a $250k loan from a lender with billions of dollars in reserve, they look at cashflow and the score. If I have a 780+ score on the day they pulled the score, I qualify for preferred rates. When I apply for a $250k loan from a local credit union with a few million in reserve, they look at income and the history. Even if managed to have a 780+ score on the day they pulled the score, my little games from 90 days before to game the FICO model draws scrutiny and my rates are normalized to rates sans if I didn't play those games (which I dont anymore because the local credit union has the best deal always).

techsupporter 6y ago

Credit issuers, particularly unsecured credit card issuers, have been calling back lines every time there's even a whiff of an economic downturn since time immemorial. Those who "play the credit card game" have learned, usually through burned hands, to anticipate this. There's no such thing as a reliable limit through a big issuer. This is doubly true if someone has been chasing CLIs through "luv" (getting credit limit increases by clicking the "request limit increase" button on issuer web sites, often called the "luv button"). The only reliably stable limits are through small issuers who have much tighter rules and a much less intricate risk model. Also, on this: > other class of borrowers who had opened credit lines, planning ahead, to tap into exactly during such times will now be left without access to that what they had planned for in the past. > This now puts a short squeeze on people who could plow through these hard times and puts them at risk All I can say is absolutely do not rely on credit being there as a backstop. That's what cash savings are for. Yes, it's easy for me to say "just save six months of expenses!" and I'm not trying to call you wrong, so much as get a head start on the next class in the School of Hard Economic Knocks. The only people who can rely on credit being there are people like that ex-Amazon engineer whose tweet I've been seeing passed around these past couple of weeks. He pulled $250k out of a HELOC on some investment property in Seattle he's been trying to sell, "just to have the cash." He likely already has so much cash or short-term equivalents to his name, that added $250k is less out of need and more out of strategy. That class of investor will always have credit available; most of the rest of us will see it pulled at the worst possible time.

subhobroto 6y ago
The amount of insight and knowledge in your comment is so dense that my single upvote does not do it justice. My thoughts: > Credit issuers, particularly unsecured credit card issuers, have been calling back lines every time there's even a whiff of an economic downturn since time immemorial I have an aggregate mid six figure credit line excluding mortgages. Have been through this and the last two recessions. Never had a $1 drop in CL: I choose who I build realtionships with very closely. Infact, I have had CLIs happen during "good times", without me reaching out . One lender even did a CLI without even notifying me (they usually email or mail you "good news!") - the only reason I noticed is because I like to look at my statements manually every billing period. There is no Bank of America, Citibank or any of that retail nonsense in my basket of credit mix. Majority of them are in geographically diversified credit unions Finance 101. > absolutely do not rely on credit being there as a backstop. That's what cash savings are for cash is an asset class but it's extremely expensive and a liability for me. cash causes me headaches. Even with my 3% APY bank accounts (people seem to believe there are none of them in the US which is untrue!) after effort and inflation, I barely break even. I have to track it, protect it try and ensure it does not loose value too much. I have to visit local branches when I need to take it out or deposit it. Credit is awesome. In the U.S., it's really cheap and consumer lines of credit have extremely strong protections. I purchased a $500 phone from Best Buy because they had a special promotion that required me to purchase their gift cards. They would not allow me to purchase gift cards using my premier credit card, so I used cash. A year later, the phone died. I had 0 recourse. Had I purchased it with my Amex, all I would have to pay is a $50 processing fee, if at that. I would, at worst, get refunded by Amex, the fair value of the phone at that time. In my few interactions with Amex, I wouldn't be surprised if they just credited me $500.

lotsofpulp 6y ago

>Since a certain class of borrowers are being unable to honor their obligations, other class of borrowers who had opened credit lines, planning ahead, to tap into exactly during such times will now be left without access to that what they had planned for in the past. If you’re planning ahead consists of opening up credit lines via credit cards for your household finances, then you’re going to have a bad time. Credit from credit cards can be revoked at any time, and it makes no sense that credit card companies would be willing to lend in riskier markets.

subhobroto 6y ago
> If you’re planning ahead consists of opening up credit lines via credit cards for your household finances, then you’re going to have a bad time If that's the exclusive and only back up, yes. A financialy savvy person will mix both credit and debt classes for their situation. There is no one true answer in engineering and this is financial engineering. If you dont drive a car, you probably won't die in a car crash. However, you're less likely to get exposed to opportunities than a person who does drive a car.