Banks and lenders are working hard to cover their own tails. They’re reducing credit limits even for reliable customers on everything from HELOCs to credit cards — even on customers with excellent repayment histories. The Wall Street Journal reported last week on American Express’ changes, looking at one couple in particular: John and Monica Bell, of Pennsylvania. The Bells previously had a card with no limit, on which they never carried a balance. On average, they would charge approximately $5,000. American Express imposed a $1,100 credit limit on the Bells recently:
AmEx customers who pay with plastic at the same places where Mrs. Bell shops and have the same mortgage lender have poor repayment histories, according to a letter sent by AmEx.
“They’re holding me accountable for someone else’s credit,” fumes Mr. Bell, a real-estate agent in Chadds Ford, Pa. His mortgage loan came from Countrywide Financial Corp., now part of Bank of America, and his wife uses the AmEx card at retailers Wal-Mart Stores Inc. and the Marshalls unit of TJX Cos. and to fill up her tank at Sunoco Inc. gas stations.
It’s not just American Express who’s cutting limits, though. And those shrinking limits can wreak havoc on your credit score, even if you aren’t carrying a balance. Credit scores are partially based on the ratio of debt you have to the debt you could have. Your credit limit marks the amount of debt you can afford — that you could have. If that number suddenly drops, so does your ratio.
Even worse, there’s no law stopping credit card companies from dropping your credit limit below the amount you currently owe. If that happens, you can get hit with overage charges immediately. The only protection you have against those sorts of fees is to carry only minimal balances. If you spot such a change on your credit card statement, it’s more than worth your while to call up your credit card company and ask to have your credit limit raised at least to the same level as your current balance. You can also ask to have the charges removed, but there’s no real guarantee.
Some credit card companies have gone so far as to cancel credit cards. While that seems mostly focused towards accounts that haven’t been used in a while, they do seem to be targeting individuals with high balances, especially if they live in areas hit hard by the housing downturn. That group is considered especially risky right now and have also been a significant portion of the credit card accounts with lowered balances or higher interest rates.
Remember, your bank or credit card company does have to notify you in writing of any changes they make to your account. This is a time to be especially diligent about opening your credit card statements, as well as any other mail you receive from your lender. I know more than a few people who just shred their bills, especially if they pay online. Now is probably not the best time to be using that method.
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