This article was contributed by Steve Sildon at Steve writes frequently about credit cards, providing advice, tips and expertise on a variety of personal finance and credit-related topics as well.

Given the recent swoon in our economy, the credit worthiness of thousands of consumers has been left in shambles with rapidly declining home values, job losses and bad mortgages on top of it all. For years, the credit markets have been overly generous with consumers and now these bad lending practices are coming home to roost.

Card issuers have been forced to adapt to the recent changes in the credit markets and have tightened their lending and credit approval criteria significantly since late 2007. Card issuers have cut credit limits substantially for scores of consumers and have even started closing accounts en masse due to account “inactivity”. Many consumers that have relied on their credit cards in the past are suffering heavily from the fallout.

With so many credit card accounts being closed and credit limits being slashed so suddenly, many consumers have been left wondering how these credit decisions are being made. Who decides who gets credit? How do they decide how much credit to extend? Is it based solely on my FICO score? What factors are taken into consideration when making these credit line decisions?

For starters, there are 2 separate classifications for credit line decisions: traditional and non-traditional factors. Traditional factors in credit decisions, typically considered first in the decision-making process, are things such as credit card payment history, credit bureau data (FICO scores) as well as reported income, among others.

What most people are unaware of is that there are several “non-traditional” factors that weigh heavily in the decision making process as well. One non-traditional factor in particular that is considered is the type of mortgage that the cardholder has and, in particular, whether the loan is subprime or prime. A subprime mortgage, suitable for borrowers with less than ideal credit, might indicate to a card issuer that the cardholder is much more of a default risk on a credit card balance than a prime mortgage holder would be. Card issuers have always factored in the mortgage type of the cardholder as one consideration in the process, with the housing market in such a perilous state though, card issuers are weighing it much heavier in lending and credit limit decisions than they have in the past.

Another non-traditional factor taken into consideration is the geographic location of the customer. Location has always been a factor that’s been considered as well, taking into account where you live as a factor in your credit risk. But nowadays, geography has a heavy influence on decisions about credit worthiness. Cities, towns and entire geographical areas that have experienced job losses or heavy unemployment represent a significant threat to lenders who fear the impact of unemployment and its effect on the ability of cardholders to repay their debts. Banks and lenders are keenly interested in knowing about the threat of unemployment in any geographic area. Even those cardholders with steady, long-term employment and no legitimate threat of job loss have been hampered trying to get credit specifically because of their geographic location.

As of late, spending patterns of cardholders are another non-traditional factor that’s being heavily considered as well. People who begin to show a sudden change or an atypical pattern of spending represent a huge red flag for card issuers and lenders. Charging “necessity” items such as insurance premiums, electric bills or grocery items signals the issuer that the cardholder is starting to have financial problems. Things like sudden cash advances being taken out, small payments being made or card balances rolling over from month to month instead of being paid down as usual, all represent atypical spending behavior and sudden changes in spending patterns that can red flag your account and indicate that you could be in trouble financially.

So what can you do about all of this to protect your credit-worthiness? For those of you who’d like to protect your ability to get credit, there are a few things that you can do, or not do for that matter. One of the best things that you can do is to keep your spending patterns status quo. Don’t suddenly change your spending behavior by taking out cash advances or start revolving balances when you’ve always paid them down in full in the past. Any sudden changes might indicate cash-flow or financial issues that might scare your card issuer into changing the terms in your agreement, reducing your credit limits and/or even increasing the interest that you’re paying on that 0% balance transfer that you made months ago!

The best advice about protecting your credit worthiness in times like these is simply this: make sure that you keep making your payments on time, and above all, keep those card balances low.

Easier said than done? Yes, but if you can simply follow that advice and stick to it, you should never have any problems getting credit now and keeping it in the future.

pic by: Andres Rueda

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