Have you noticed anything strange about your credit cards lately?
If you’re like many people, where the credit card issuers once were falling over themselves to stuff your mailbox full of unsolicited credit card offers, now the letters are informing us of grimmer matters:
- Because of inactivity, we have closed your account.
- To help you maximize your credit, we have lowered your credit card available balance.
- While your American Express card once had unlimited charge availability, for your convenience, we have added a credit limit of $4,000.
Reeeaaaal convenient, credit cards. Real convenient.
Especially because we’re about to get a new credit-scoring mechanism known as FICO 08, which counts the percentage of credit used (out of your total available credit) more stringently. That means if your credit limits are lowered, but you carry a balance, the balance makes up a greater proportion of your available credit. And that might mean your credit score goes down.
What if it happens to you?
The limit-slashing has been going on for a while. But from what I hear, it seems to be getting more serious recently.
If it happens to you, you can call the credit-card issuer and ask them to reinstate your limit. If you have not missed payments and can convince them you need the additional credit (you put all your bills on that card and pay it off monthly), they might go for it.
Do not close the account. That will only shrink your available credit (impacting your debt-to-credit or credit utilization ratio) even more. If you want to show them, start using a different card instead, but keep the other one open.
It may sound like a good idea to close an account once you pay it off. But when you do, you slash your total available credit, which raises your utilization ratio and takes your credit score for a tumble. Your score also factors in the average age of all your accounts (the older the better), so closing an older account is a double-whammy. (See the Kiplinger’s article for more.)
Around the Web
Credit cards are convenient. No doubt about it. They also cause financial migraines for millions of people — and of course, they’re ultimately a tool for big companies to make big, big bucks. Check out these articles to learn more about how to use credit smarter:
- The games credit cards play – This guest post on Get Rich Slowly talks about how to avoid credit card company traps.
- If you’re looking for a primer on how to be smart about using credit cards, check out this post on Free Money Finance.
- Wise Bread took a look at new fees credit card companies are charging — including a monthly fee (on top of interest and the fees charged to retailers) for the privilege of holding a card. Check those statements!
- And here’s a testimonial about the rebate coming to one blogger from USAA (this card is available only to military families, but other cards offer good rebates too). Who knows if this way of benefiting from credit cards is here to stay, but if you can use credit responsibly, enjoy it while it lasts.
It can’t be said too often — check your statements, find out what is going on with your credit, and take care of your financial well-being. Your best move of all — don’t get into too much debt, and if you find yourself headed there, pay it off as soon as you can. You’ll sleep easier without worrying about those wacky credit card tricks.
