Decreased Limits on Credit Cards

03/22/09

Owning credit cards during an economic downturn might look very different than it has the past decade. Like mortgage lenders, banks who offer credit cards are tightening their lending standards. They are lowering the limits for many consumers and restructuring terms and rates. In fact, some customers whose accounts are current have even had their maximum credit amount lowered. And it is estimated that about 60 percent of banks have cut limits for subprime consumers. Many banks are reevaluating the credit histories and scores of customers who currently have credit cards. They can modify the terms, limits and interest rates for a current customer they feel might be a credit risk. For those who only pay the minimum required each month, an increase in rates could mean higher payments. Banks may even cancel some credit cards that have been inactive for over 12 months. Your credit score can be impacted by changes in the maximum limits allowed on your credit cards. Almost a third of your credit score is based upon how much of your actual credit limit you have utilized. Your percentage of debt will increase, if your limit is lowered. Your credit score could consequently be hurt. If you had a card you did not use for a long time that was cancelled by the bank, it could impact your score too.

An estimated two thirds of consumers who own credit cards in this country have an outstanding balance. This translates to a large number of consumers who will be directly impacted by any changes banks make regarding credit cards. You can contact your credit card company if you are notified of credit limit or interest rate changes. If you are in good standing and have a record of low balances relative to your limit, you have a very good chance of convincing the company to give you back your original rates and limits. If you have a spotty record, however, the new rates and limits are likely to stick.

It is always best to pay off your balances in full each month. It is important to be aware of the conditions and rates for credit cards on which you may presently carry a balance. Pay attention to any new notices you receive regarding those credit cards. Then, try to make reducing your debt a resolution for the New Year. Start by paying more than the minimum amount each month. Try to save money whenever you can, so that you can make extra payments. Many financial advisors tell consumers to tackle the card with the least balance first, if you currently have balances on several credit cards. You can also shop around for credit cards with lower rates to which you can transfer balances from higher interest cards. If you do open a new card with a lower rate, do not spend more on that card. Be diligent and do not lose sight of your goal. The freedom of being debt free will be worth all your hard work.