Beware of Falling Credit Limits

Written by admin - 6 Comments

First we started hearing about arbitrary increases in credit card interest rates, and now this… According to a recent blurb in Money Magazine, however, credit card issuers have recently started reducing credit limits for some borrowers, even those with good credit records.

Factors that put you at risk are making an occasional late payment, living in a high foreclosure area, and/or carrying risky debts such as an interest-only mortgage. Unfortunately, a reduced credit limit can push up your credit debt-to-credit ratio (i.e., your credit utilization), which is an important factor in determining your credit score.

If you’re a victim to this sort of a decrease, try negotiating with your credit card company. In all likelihood, the change was triggered by a computer and it’s possible that a real-live person will be able to re-instate your old limit. If reasoning with them doesn’t work, threaten to cancel your card. If that still doesn’t work, then you should at least try to reach a compromise — perhaps an intermediate credit limit, or a favorable interest rate in return for keeping your account open.

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Comments (scroll down to add your own):

  1. How would a credit card company know the terms of a mortgage that appears on your credit report. The fact that it is interest-only does not appear on your credit report. Nor does the fact that it is an ARM, balloon, or whatever. Or the interest rate.

    Comment by Peter — Mar 31st 2008 @ 11:40 am
  2. I recently had this happen with one of my Amex cards. I called to have the limit increased back to what it was but they declined stating that I had too high utilization ratios.

    Like reducing my credit was helping right? I tried again to get it increased but they refused so I cancelled the card. I have another Amex that has a higher limit which has not been reduced and it is older so it helps my credit score.

    Comment by lulugal11 — Mar 31st 2008 @ 1:58 pm
  3. Peter: That’s a good question. I think a big part of it is that they can see *who* you’re borrowing from, and certain lenders specialize in riskier types of loans. That being said, I would imagine that things like high utilization and late payments (on any credit or loan, not just the one in question) would be the biggest things that would trigger this.

    Comment by admin — Mar 31st 2008 @ 6:07 pm
  4. Can you tell me where the article is in Money Magazine? I have a friend who had this happen – to her husband’s business card. It has really caused them some havoc. I would like to tell her where the article is so she can go look it up in the library.

    Comment by m3kp — Apr 1st 2008 @ 8:59 am
  5. m3kp: There’s not much more information in the article that what I gave, but it’s on page 22 in the April 2008 issue. Hope this helps.

    Comment by admin — Apr 2nd 2008 @ 1:06 pm
  6. One other factor you didn’t mention not using your card enough. I cancelled a Blommindale’s Visa which I had gotten due to some big furniture purchases there and had kept in case my primary credit card was lost or stolen. They reduced my limit from $6,000 to $500 saying that my not using it enough made me a credit risk. By the way my credit score at the time was pushing 800. Needless to say I was not amused and a funny thing they didn’t try to keep me go figure.

    Comment by Jane — Apr 9th 2008 @ 9:01 pm

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