| Credit Card Limit Cut |
| By Credit Federal |
Published
05/24/2009
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Credit Card
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Government Law Is Force Behind Credit Card Limit Cuts
Now that the federal government has interferred with credit card company competition (the ability to adjust interest rates to offer lower interest rates and higher credit limits to people with better; or improving, credit scores), now you can expect card issuers to not only increase interest rates for all new cardholders (even good credit people), but to also likely cut credit limits on existing risky cardholders.
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Why? Because government law now forbids credit card companies from selectively increasing interest rates on those specific cardholders who are 30 days past due on bill payments. Since they're now forbidden to do this, in order to offset the losses caused by the percentage of delinquent payment people who eventually default, their only course of action is to raise rates on all new cardholders and to cut credit limits on nearly all accounts. It's all about protecting assets, not merely profits. Because of past government interference, banks hold billions of debt caused by legislation that forced them to extend high credit limits to bad credit, high risk people.
If your credit card company just slashed your available line of credit, you can call the credit card company and ask for your higher limit to be restored. But, asking for a higher credit limit is not recommended for everyone. If you’ve been late paying bills or if you have high debt, it may be wiser for you to keep quiet and not to attract attention in an already senstive environment. Your credit lines could be cut further if you're considered a higher risk, or the issuer may simply close the account. Even if you've never charged anywhere near your max limit, credit card issuers fear how much you could charge and what would happen if; for example, you lost your job (which isn't too unlikely in the current market). And what if you couldn't get a home equity loan to payoff bills?
To protect themselves, some credit card issuers are watching where you spend your money to spot signs of some hardship. For example, charging expenses such as utilities which you normally never charge.
Even consumers are taking similar protective stances. Many people have no plans to get near their max limits. Consumer debt; including credit card debt, has had a two month decrease. Many cardholders are using their cards less, even as banks take scissors to available lines of credit. Outstanding revolving debt (which is mainly from credit cards) fell $5.4 billion, or 6.8 percent annualized, to $945.9 billion in March. After falling six months in a row, such debt is down 1.2 percent in the past year. One expert estimated about $5 trillion is available in credit card lines nationwide and forecast credit lines could be cut by up to $2 trillion by year-end, including credit limits that are gone when accounts are closed or charged off as bad debts.
The expectation is credit cards could be the next crisis in the credit crunch.
It's wise for consumers to payoff debt, but don't be hasty to close credit card accounts just because an issuer raises rates or cuts credit limits. Keeping those lines of credit open not only offer you instant credit, but also helps boost your credit score.
Examine any mail you receive from your credit card company and review your statements to see where your limit stands and what changes may be coming.
Pay attention to statements or letters. Many credit card issuers are cutting back on the available lines of credit on credit cards.
Call your credit card hotline (or review your account online) regularly so you know your credit limit. Before you make a big purchase, make sure your credit limit has not been slashed so you won't get hit with high fees and higher rates if you charge above the limit.
If your limit gets cut, call and negotiate a credit limit that's higher than the newly cut level. It could be tough to negotiate and persuade a credit card issuer to raise your credit card limit back to the old high limit, especially if you have a lot of debt or live in an area hard hit by unemployment or foreclosures.
Government Credit Card Control Dooms Rewards
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