Balance chasing is a practice credit card companies are using to reduce their risk, find out what it is and what you can do about it.

Balance chasing is when the credit card company cuts your credit limit to just above your balance. If you owe them $500, they cut your credit limit to $550 (or something close). This appears to happen most frequently after you make a large payment to reduce your balance.

Why does this matter? It will hurt your credit score because it’ll look like you’re maxing out your cards, even though you just did a responsible thing – paying down your balances. Technically, your credit utilization, one of the big factors in your FICO credit score, will go up because the percentage of credit you’re using will increase as your limit decreases.

What can you do to prevent this?

There is only one way to ensure that balance chasing doesn’t hurt you. Carry no balances. Even if a creditor reduces your limit, it won’t hurt your utilization ratio.

Just another reason why you shouldn’t carry a balance on credit cards.

Chasing The Balance — What It Is And Why It Sucks [CreditMattersBlog.com]

Jim writes about personal finance at Bargaineering.com.

(Photo: armydre2008)

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