Credit Card Companies Slashing Credit Limits

The continuing subprime meltdown is leading jittery creditors to reduce cardholder credit limits at the first sign of trouble. According to a recent survey, up to 75% of banks are cutting credit limits to minimize their exposure to risk. The move can adversely affect credit scores, which are determined by considering the percentage of available credit used. From the Chicago Tribune:

A change can stem from late payments of any kind, a drop in your credit score or the addition of new lines of credit. Bryan found out limits on three cards were actually cut after he took out a home equity loan to pay off some debt.

“Taking out the home equity loan may have possibly been the factor that lowered the credit line,” Bryan said.

Consumer advocates say lowering limits is a better way to manage risk than hiking interest rates, but these cuts can lead to trouble if you are not aware and prepared.

“If you don’t know your credit line has been dropped, you could go over the limit. And, with most card issuers, that means you’ll pay a hefty over the limit fee,” Gerri Detweiler, a credit card expert, said.

Check your statements carefully to make sure your limit hasn’t changed. The best way to keep your current limit is to use credit responsibly. Pay your bills in full each month, and don’t take on debts you can’t afford.

Some Companies Lowering Credit Card Limits [Chicago Tribune]
(Photo: mojojornjorn)

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