Credit Card Issuers
Here I go again talking about credit cards, but it’s an issue all
over the news right now and I can’t ignore it. The fact is, credit card
companies are lowering credit limits on open and active credit card
accounts. And don’t think just because you make your payments on time
that you are immune from this. Credit card issuers are not just focusing
on people with late payments or delinquencies, they are attacking
anyone who has available credit… The reason behind this is to limit the
risk of people running up high balances and then defaulting on the
unsecured debt. Great for the credit card companies, bad for consumers.
By doing this, people’s credit scores are suffering. Remember, 30% of
your credit scores are calculated by debt utilization (current balance
divided by available credit limit). If credit limits are lowered and
balances remain the same, debt utilization goes up and credit scores go
down.
Because consumers have no control on what credit card issuers are
doing, we must focus on doing things that will limit the negative effect
this will have on credit scores. First, we should all get in the habit
of contacting our current credit card companies every six months and ask
to have limits raised—the more available credit the better. Second,
explore the idea of opening a new credit card. Having another credit
card will add more available credit to the mix and lower aggregate debt
utilization. Third, work on paying down current balances. Also, getting
in the habit of only using 10% of the available credit limit and paying
off the balance each month will ensure that your debt utilization ratio
is not keeping your credit scores lower than they should be. All three
of these things will help to increase credit scores. Be careful though…
There are definitely negative issues to consider when increasing credit
limits or opening new cards, so take a look at the big picture before
doing either of these things.