Banks and other credit card providers are starting to review thousands of customers' credit limits and increasing the number of new applications that they turn down, as the fallout from the US lending crisis continues. By taking this action, lenders hope that they will cut the expensive costs of pursuing late payers and defaulters.

Major credit card provider Barclaycard, like most UK credit cards companies, has reduced the credit limits of half a million customers as it continues to review the spending patterns and behaviours of its customers. By taking such action, the company hopes to identify those most likely to be unable to repay their debt should the credit squeeze bite even further. In a two-pronged attack on the new credit problem, over half of the new applications to Barclaycard will ultimately be rejected, and at the same time existing customers are being closely monitored to ensure that they are not slipping into difficulties.

Barclaycard, however, insists that this is not a panic measure but an extension of policies introduced in 2006. A spokesman for Barclays said: "We have been carrying out an extensive review since 2006 and as a result have lowered the limits on credit cards for over 500,000 cardholders where we believe those customers have become overextended or where they have exceeded their agreed limit."

Even though the bank argues that their actions are merely good business practice, observers link it to falling profits; a 17% drop in the first half of their financial year. This is just the start of potential problems for Barclays as it's also seeking to off-load its consumer loan business First Plus for considerably less than the loan book worth of £4.5 billion, amidst growing concerns of rising bad debts. The bad news for the retail trade as Christmas approaches is that Barclays are not alone in taking this action. Most high street banks, credit card companies and other lenders are following suit.

From the consumer's point of view this is a definite change. The era in which credit card deals were abundant and easily available looks to be coming to an end. It will be even more vital to compare credit cards, the benefits they offer and the rates they charge before switching or even thinking of applying for a new card. Anyone thinking of applying for a new card that has a less than perfect credit record should think carefully, because if they are turned down for any new credit cards that application will leave an imprint on their credit record making it even more difficult for them to get credit in the future.
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Paul McIndoe is an online, freelance journalist and keen hillwalker. He lives in Edinburgh with his two dogs.