Because this credit crisis is so deep, many credit card issuers have begun reducing their cardholders credit limits to avoid further loss. Problem is, they are dropping the limits and at the same time this is plunging consumers credit scores across the country.
The credit card companies have every right to reduce someones credit limit if they feel the cardholders financial outlook has deteriorated but the people being affected are not defaulters, for the most part. They’re average hard working people who pay their bills on time.
The card limit reductions are not isolated. It’s affecting millions of Americans who have worked very hard to improve their credit scores and many have done so in the hopes to refinance a mortgage or auto loan, but all that hard work is gone in an instant if the credit card company decides to reduce your limits.
So why does that affect our score?
Because part of your credit score is based on how much credit you have available versus how much debt you owe (debt ratio). If the credit card company lowers your limit, now it appears that your debt ratio has jumped and thus, brings down your credit score.
Millions of Americans are in fear of that happening to them and for good reason. A credit score of 720 can be quickly knocked down to 680 by these actions taken by the credit card companies. That will have a major impact on your ability to secure a good interest rate says credit expert Kristi Feathers.
Your best option is to keep a close eye on all three of your credit reports and if you feel you may be at risk contact the credit card company and make sure all is well with your account. Those who rarely use their credit cards will be affected too because credit card companies will begin closing those accounts and that too will impact your score.
Make sure you pay on time all the time. Don’t give the credit card companies any reason at all to reduce your limits.
