Many Lenders Lower Credit-Card Limits

[question everything]

SEPTEMBER 30, 2008

Many Lenders Lower Credit-Card Limits
By ANNAMARIA ANDRIOTIS


It's not just your portfolio that may be shrinking lately. The spending limit on your credit card may be heading south as well. Credit-card issuers have been decreasing credit limits. "Most banks are cutting their credit limits," says Carol Kaplan, spokeswoman for the American Bankers Association. "They're doing it to everyone."

Smaller credit lines spell trouble for consumers on several fronts. Lower credit limits shrink consumers' ability to spend. And should an emergency arise, consumers will have less credit to cover those costs. Consumers also could trigger penalties for going over a newly lower limit.

Here are five ways you can protect yourself:

* Lower your card debt. Carrying credit-card debt is never good, but it's really not a good idea these days.
* Watch the mail. When credit-card issuers lower credit limits, they must notify you.
* Check your report. Credit-card issuers review consumers' credit reports for red flags, like late payments to other credit cards, a sudden buildup of debt or high credit-utilization rates. Check your credit report for free online at AnnualCreditReport.com. If it includes any errors, report them to the three major credit bureaus, Equifax, Experian and TransUnion.
* Get online alerts. Ask your credit-card issuers if they offer alerts that notify cardholders when they're nearing their limit.
* Shop around. If your credit limit gets slashed, don't cancel your credit card. That will decrease your credit score. Instead, shop around for more attractive credit-card offers.

http://online.wsj.com/article/SB122273798697188787.html (subscription)

[KT2000]

1. Will that affect FICO scores

Wonder if the company lowering credit limits will affect it one way or another.

I sure do not undersatnd why a FICO score should be lowered when the consumer cancels the card. Sounds like responsible behavior to me.

[question everything]

4. Something about ratio of available credit vs. amount of credit actually used

Funny, many years ago it was the opposite. Someone once told me that a lender did not like the idea that I can go and, say, charge $30,000 because such credit was available summing all the credit cards.

Now, they want you to have all that credit but to use no more than 50% of that.

So if you carry a balance of, say, $7,000 and the limit is reduced from $14,000 to $10,000 - this will affect FICO score.

And, yes, individuals who try to live within their means, to use cash only, will have hard time taking a loan since they have not established a track record of taking on loans and paying them steadily and on time.

[tandot]

2. Suze Orman also mentioned that this will cause your FICO score to go down

since your score is not only derived from your payment history, but also from the credit available to you and the outstanding debt. I think she said that 30% of your Fico score is derived from your credit limits.

A lower score might change your insurance rates and interest rates for loans.

It was on Larry King:

http://transcripts.cnn.com/TRANSCRIPTS/0809/29/lkl.01.html

[KT2000]

6. Thanks!

guess they will make alot of money on this move then.

[Warpy]

3. It's a real pity they didn't do that years ago,

or at least made it just a little harder to get a credit limit raised. A lot of people with a serious debt load might be closer to solvency if the credit hadn't been easy and nearly limitless.

[tandot]

5. My credit card limit on one of my cards was raised to $32,000

I have zero balance on it and actually don't use it anymore. I can understand how some people might be tempted to just max out their cards.

[pengillian101]

7. Isn't this crazy...

I had an offer from a new card issuer with a $32,000 limit right off the bat. I charge very little on my only card and pay it off every month - maybe that's why - who knows. It was odd.

:shrug: