Credit card limit lowered, credit score goes down
If you have several credit cards and carry balances on more than one, it is important to stay proactive and pay attention to each card limit. Lowered credit limit on a card with balance increases the credit utilization rate and often makes credit score go down. If two or three issuers have your credit card limits lowered, the scores will likely go down quite significantly.
Who is the most vulnerable to such a scenario? Credit card holders who transfer balances at 0% percent interest on two or three cards and set up monthly automatic payments. And with banks lowering credit card limits, it is easy to suddenly discover your utilization rate is too high and credit score went down 50 or more points.
Check credit card limit often
Every time you login into the account, look at it carefully. Often, bank send neither timely letters nor emails. On many occasions, consumers learn their credit card limit lowered to the point the utilization rate is over 90%. I know it sounds too far fetched, but if you look at the numbers, it is not so. Suppose you transfer $3,000 on the credit card with $10,000 limit. 30% credit utilization rate is just fine. Then for one reason or another, the bank lowers the credit limit to $3,300, giving you a very bad 91%.
Now imagine someone with more than one credit card, where balances are just $100 under the limits. The good credit score will not just go down, it will drop like a rock. Worst situation is when a credit limit matches balance, putting you at 100% credit utilization rate.
If your credit card limit is lowered, what can you do
Unfortunately not much. You can try to ask the bank or banks very politely what can be done to fix it. Never close credit cards which you don't use, to placate the issuers of the ones with balances. If you do, there is no guarantee, your credit limits will be raised and you will loose not only use the just-in-case credit lines, but lower credit scores even more.
Don't think of transferring balances on other credit cards, unused or with higher limits as some advise. First, it will cost you 3% to 4% of a transferred balance, which is a typical transfer fee all 0% interest offers now come with. Second, if you leave a balance on credit card which causes your grief, it likely lower the limit again. Here is to clarify -
credit card 'A' has $4,000 balance, $4,200 limit, 95% utilization rate - very bad
credit card 'B' has $0 balance, $3,000 limit, 0% utilization rate - excellent
your combined credit utilization rate is sum of balances ($4,000) divided by sum of limits ($7,200), yielding 55% - quite bad but somewhat bearable
You transferred $1,000 from credit card 'A' to credit card 'B', so now you have -
credit card 'A' has $3,000 balance, $4,200 limit, 71% utilization rate - slightly better
credit card 'B' has $1,000 balance, $3,000 limit, 33% utilization rate - good
your combined credit utilization rate is still the same 55% - $4,000 divided by $7,200
But the issuer of credit card 'A' is not done, as it lowers its limit to $3,200. You are now back to 94% utilization rate on this card and your combined rate is 64% - $4,000 divided by $6,200.
What you can do
Log into your account and look at the Alerts. You will certainly have one like Credit card balance within $_____ of card limit. Put a $ amount that makes sense and activate it. Of course, having an alert stating something like Credit card limit is lowered would be much better.
You should watch credit card balances carefully, especially if credit limit is equal to or only slightly higher than balance, because monthly interest may very well put you over the credit limit, and then you have over-the-limit fees added. That will force your credit score go down even more.
Wed Jun 29, 2011 06:06PM | Copyright: www.bad-credit-advisor.com | More in Credit Score Help | Comments (0)
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