Reader James writes in with a story we hear a lot lately. During the run up to the credit meltdown –Bank of America kept raising James’ limit. He ran up a balance while caring for someone who eventually died — and now that he has paid off his debt, his limit has been cut. In the long run, however, he feels that he’s better off without credit cards.

James writes:

Bank of America is off to an impressive post-CARD Act start in cutting customers’ credit lines. I’ve been a cardholder since shortly after starting business school, and they steadily increased my limit (while I was still a student, and then unemployed) to $10,000. To their credit, it’s stayed at a great interest rate under 10%.

I was unemployed for a while and then dealing with a family member’s terminal illness for a couple of years, and my card was maxed out for most of that time. I managed to scrape by, though, and didn’t miss a single payment, which ought to show that I’m a responsible cardholder.

I called BoA last month to ask for a temporary credit increase to cover funeral expenses, for which they turned me down. Once the life insurance came through, I paid off my balance in full, as well as about a quarter of my student loans.

The day after they received my payment, BoA called me first thing in the morning to say that they were freezing my account until I provided a W-2 and a bank statement to show that my payment wouldn’t bounce. Not fun, but understandable; I faxed everything over within half an hour. The check cleared my bank the next day, but there was no word from BoA.

Four days later, I called and was told that only the credit analyst I had spoken with could unfreeze my account. Three days after that, he called to say that my account was unfrozen, but that after a “very extensive review of my account history and credit file,” my credit limit was being lowered from $10,000 to $2,500. I mentioned that I had now paid off many of the other debts that appeared on my credit report, but he wouldn’t budge, as my monthly disposable income after rent and student loan payments is “only about $1,200.”

$1,200 sure seems like a lot of disposable income to me. The life insurance proceeds changed my situation from desperate to very comfortable overnight. The traditional rule is that you can only get credit if you don’t need it; I somehow got credit when I did need it, but I guess BoA’s new rule is that you can’t get it at all. It’s nothing to be too upset about, though: given the many evils of credit cards, I know I’m better off without them.

Sorry to hear about your loss.

Your credit score might have taken a small hit when they lowered your amount of available credit, but the important thing is that you still have the card (and the credit history that comes with it) and that you are a responsible borrower. Seems to us that you’re still on track and have the right attitude, even if Bank of America’s lending decisions seem hypocritical.

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