Are Credit Card Limits Being Lowered? Will This Impact My Credit Score? – Episode #42

July 10, 2008 by  
Filed under Episodes, Favorites

There is a lot of press around behavioral model induced reductions. Marriage counseling, charging for low price items, even not using your cards risks a credit limit decrease which can hurt your score. There are numerous things you want to do to avoid a credit limit decrease.

1. Read your statements. Don’t go into denial about your statements, that’s where the notice of a credit limit reduction will occur

2. Don’t change your charging pattern. Using credit cards at Starbucks or Peet’s this month when you’ve always paid for these with cash in the past signals that your credit may be shaky and this can lead to a credit limit decrease.

3. Don’t stop using your credit cards altogether. This can lead to signaling as well and some consumers are reporting that this is leading to credit limit declines.

4. Don’t use credit cards for “flags for risk”. Financial institutions are watching your transactions. A charge for marriage counseling can be interpreted as a potential for divorce and thus financial distress. Pay for these services in cash or debit cards.

5. Play the game. Life is often about negotiations. If can prove you need a bigger credit limit, ask for it. Or save this move until the credit limit decrease happens.

If you are married, don’t forget to watch all your authorized user and joint credit cards to see if limits have been impacted. If you are a recent high school grad, or in college, make sure you are watching your credit limits and your credit scores.

Credit limits being reduced is a big story in the media with stories from the WSJ, CNN, and other news agencies.

Here’s some stats from other articles:

A CNN article also illustrates this: Consumer Credit Limit Crackdown.

American Express has reported over twice as many credit reductions have occurred in 2008 versus previous years. Typically, Amex will change the credit limit for 20% of its customers, with 16% getting increases and 4% getting a credit limit reduction.

Starting in summer 2007, Amex gradually tightened its lending. Now, American Express is lowering the credit limits for 10% of its customers, said Kimberly Forde, a company spokeswoman.

62% of credit card issuers have cut back the credit lines they make available to consumers, according to a recent report by Javelin Strategy & Research.

Issuers are cutting down consumer credit lines – sometimes by more than 50%, according to the American Bankers Association (ABA), a bank industry trade group.

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Comments

15 Responses to “Are Credit Card Limits Being Lowered? Will This Impact My Credit Score? – Episode #42”

  1. Prep Your Mortgage Loan: Credit Score Accuracy | Mortgages Unzipped on December 10th, 2008 3:02 pm

    […] You probably know it’s becoming even more so with the credit crunch, and the fact that credit limits are being lowered putting downward pressure on credit […]

  2. When 4.5% Arrives, Be Credit Ready | Mortgages Unzipped on January 15th, 2009 5:07 pm

    […] card issuers are making it tougher on consumers lately by reducing credit limits and closing down unused cards.  It’s more important than ever to keep tabs on your credit, […]

  3. Sasha on January 29th, 2009 6:41 am

    People need to COMPLAIN about this! Write the White House! It can’t hurt, and it only takes a few minutes!. The squeaky wheel gets the grease, so speak up!

    http://www.whitehouse.gov/contact/

  4. VideoCreditScore-Andy on February 4th, 2009 1:19 pm

    Sasha, good advice. It’s always wise to contact your congressman as well.

  5. Thomas on February 9th, 2009 8:58 am

    I have been enjoying your videos and have been recommending it to my friends – I was wondering if you could answer the following “tricky” question on Credit Utilization Ratios:

    I have a AMEX credit card and its credit limit was reduced to an unbelievable $500 from an original $2000 – AMEX has basically found any possible reason to reduce my credit limit and my pleas with the company has fallen on deaf ears even with a perfect payment history with them.

    I used the AMEX Delta Reserve card to get rewards on the Delta Airlines Skymiles (frequent flier) program.

    I though I would be get smart with AMEX by charging my card for a purchase then immediately paying off the charge as soon as I see the charge appear online in my AMEX account. So even with an $500 credit limit, I sometimes have an activity of about $1,200 to $1,400 each billing cycle. The card is paid off even before the bill comes to my house. But after I saw your video on Credit Utilization Ratios I got a bit confused – is the Credit Utilization Ratio based on the balance at the end of the monthly billing cycle or is it based on the over all charges vs. the credit limit for each billing period regardless if the amount is already paid off before end of the billing cycle? And do I get a good credit history by employing such a payment tactic?

    One AMEX agent thought I was prepaying my card – which is not true because I make payments after the charge appears in my account. Another AMEX agent told me it looks suspicious when so many payments are made – Am I going into uncharted territory?

  6. VideoCreditScore-Andy on February 9th, 2009 9:23 am

    Thomas, the key dates for everyone are the closing date and the due date. You can set these on most cards by calling customer service. The closing date is the balance reported to the credit reporting agencies. If you can’t set it, they have to tell you what these dates are, and they are the same each month.

    Your card issuer is a lender, and once you pay off your loan, your account is reset. It wouldn’t be correct to assess risk on your overall card usage for the month, as that might make you look riskier. Other lenders, especially installment lenders, see your behavior of paying off frequently as great, i.e. low risk of default. So, keep up this strategy.

    I think the reps you talked to may be grasping at straws a bit. I’ve never heard a negative view [re your comment on “suspicious”] on making so many payments. This strategy has worked for me for years.

    The easy habit in all this, is to pay your card off every week. That’s a habit you can keep for life and will reward your credit.

  7. Jennifer on May 4th, 2009 2:29 pm

    Be careful about paying off your credit cards, working in the banking industry, many banks are looking to make money and if you pay off your card and no interest, they may cancel the card.

  8. VideoCreditScore-Andy on May 7th, 2009 7:58 pm

    Jennifer, I still haven’t seen a cancellation based on paying off cards, every example of someone getting a cancel notice is someone [like me] who had a card that they stopped using over 6 months ago. Happy to hear of other examples if you have them. :)

  9. Julian on May 28th, 2009 7:28 am

    Hi, I started a cause on Facebook called “Boycott American Express”. Feel free to join and spread the word:

    http://apps.facebook.com/causes/289806

  10. Donna on June 10th, 2009 8:03 am

    Well,

    I have a story for you. But first let me make a few points. The credit card companies have been sending me checks through the years trying to get me to cash a check and put it in the bank or use one for vacation or transfer monies from another card on to theirs. I have never done so.

    They have been increasing my lines over the years without checking to see if I can make the payments. All this is of their own doing and now they lower my credit limit ( I have no problem with that) but THEY are the ones at fault, I did not ask for these increases, I did not ask them to send me checks and give me ideas on how to use them. I mean really who is at fault. I pay my bills on time and more than the minimum. When are we going to point fingers or I should say when is the president going to shame those banks that got themselves in this mess. Now my credit score will be lowered, it was in the 800’s but thanks to the banks I have now got to find a way to fix this mess and it may take years.
    Oh well, I hope others feel the same way I do and do something about it like write to your congressmen and to the pr
    esident himself.
    Thank You,

    Donna

  11. Susie on January 31st, 2010 8:14 am

    This kind of thing is incredibly frustrating, and I don’t enjoy taking a hit on my credit score (that I’m trying to rebuild after a bankruptcy) through no fault of my own.

    Two years after bankruptcy, I got a Citibank card with a $1000 limit. That was fine with me. Over the next two years, they gradually raised my limit, to $7000. I did not ask for any of these limit raises.

    I just got a letter telling me they were lowering my limit to $4000, no reason given.

    Frankly, I think they’re just upset that I pay off my balance every month, and I have never carried a balance in the two years I’ve had the card, although I’ve used the card nearly every month. (So they’re really not making any money off of me, except what they ‘skim’ off the merchants I use my card at – the transaction fee.) I’m not sure what my highest balance has been in those two years, but probably less than $2000 at a time. So, it’s not like I needed the $7000 limit, and $4000 is probably just fine….but I’m simply angry that this is now (I assume) a black mark on my credit. It feels like they set me up and sucker-punched me, and frankly, THAT should be illegal.

  12. VideoCreditScore-Andy on January 31st, 2010 9:26 am

    I agree that there should be tighter rules around the raising and lowering of limits. You should see what the impact to your score was. It might have gone down just slightly. But, I get it. You are attacking the principle of this practice. Here’s a way to fight back. Pay off your credit cards every payday – every two weeks. That will lower the amount of credit you using in the eyes of the bureaus and that will make your score rise.

  13. Bernadette on May 17th, 2010 7:55 am

    My comment is this. I worked SO hard to pay off all my debt, which wasn’t a lot to begin with and was never ever delinquent. It seems now that every time I pay something off in full, down to 0, I receive a notice that my credit has been reduced to like $100 or something??? WTF! I was doing all this (6 months of starvation basically) so me and my husband could buy a house and start a family. I guess that’s never going to happen now. I don’t know what to do, you pay your bills you lose, you don’t pay your bills you lose. No matter what you do banks are out to destroy you and make sure you have no hope at ever having a normal life or any sort of happiness in your future. Guess I’ll be renting the rest of my life and never having children. I honestly feel like my life has been ruined.

  14. VideoCreditScore-Andy on May 18th, 2010 8:43 pm

    The last couple of years have been tough on people. The banks have been lowering limits on good users of credit. Here’s the good news. This won’t go on for too much longer. The banks will start lending again and will find themselves needing to reward users with higher limits. Ultimately, you will be rewarded for paying on time and in full. That makes you the best prospect. You may want to call 1 or 2 cards to see if you can get your limits raised. It’s worth a call.

    You are doing the right thing by getting educated on credit scores. Bernadette, hang in there. Things will get better.

  15. nora on April 16th, 2011 8:45 pm

    credit card use is a demonic trap..
    This game comes with unstated rules …and real consequences
    everyone gets suckerpunched regardless of behavior data…banks are balancing the profit line to prevent bank losses..they don’t give a damn about conxumers..scores or otherwise.

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