Subprime may be hitting credit cards, too

NEW YORK (CNNMoney.com) -- Fallout from the mortgage mess and lower home prices may have started to creep into the credit card arena, judging from July payments and some initial moves by issuers to tighten the screws on cardholders.

After falling for three consecutive months, delinquent payments on credit cards -- defined as more than 30 days late - increased slightly in July, to 4.64 percent from 4.62 percent in June, according to CardWeb.com. A year ago, the delinquency rate was 4.18 percent.

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The amount of credit card debt consumers are paying off, meanwhile, has fallen. The portion of outstanding balances paid in July slipped to 18.3 percent from 18.4 percent a month earlier.

The repayment rate hit its peak (21 percent) in October 2006 after credit card companies began complying with regulators' mandate to boost minimum payments to cover interest, fees and some principal. For years, the default minimum was just 2 percent of your outstanding balance.

CardWeb.com CEO Robert McKinley suspects delinquencies may increase in the fourth quarter because of the credit crunch. Mortgages and home equity loans are harder to come by, home prices have fallen and more than 2 million subprime adjustable rate mortgages (ARMs) are beginning to reset to much higher rates.

"As an adjustable mortgage payment rises it may limit the ability to service other debt, and lower home prices may limit the ability to do a cash-out refi," McKinley said.

Credit card issuers, meanwhile, have begun to take steps to protect themselves. Curtis Arnold, CEO of CardRatings.com, has seen evidence of issuers boosting transfer fees and introductory rates, reducing the periods for which lower introductory rates are valid and even lowering credit limits on existing cardholders, including some prime customers.

"That correlates in my mind with what's going on in the subprime market," Arnold said. "I wouldn't say [these moves are] widespread, but I think we'll see an uptick."

That's why he cautions consumers to keep a close eye on their credit card bill and, in particular, any pamphlets that accompany them which may notify them of policy changes.

The risk of not noticing, for instance, that your credit limit has been lowered can lead to over-the-limit charges if you inadvertently exceed your new limit. A lower limit can also reduce your credit score, because if your charging habits don't change, you will automatically be using more of your credit capacity - the more you use, the lower your score. (Here's a look at just how much your score can get hit.)

And a reduced score, in turn, can boost the interest rate your card issuer charges you.