One of the biggest reasons credit card companies are reducing credit limits is to protect themselves in the poor economy. With all of the online credit card finders available, there are more people than ever who have a credit card. Many credit card companies will reduce credit limits for the customer if they don’t use the credit card or if the customer is showing to be an increased risk.
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There are a number of ways that having your credit limit reduced may affect you as a consumer. For those who are irresponsible with money, it may be more of a positive thing, while for others it may be a negative and will restrict them in a number of ways.
What are some of the downfalls for consumers from reducing credit card limits?
One of the big negatives for consumers in regards to reduced credit limits is that it will more than likely affect their credit score. According to the Wall Street Journal, your credit utilization ratio accounts for 30% of your credit score. If you have a lower credit limit, you will have used a higher percentage of your limit, which affects your score in a negative manner.
Ideally, the ratio of your credit card balances to your credit limits should be under 10%.
When you have a low credit score, you are affected in many ways. The chances of getting other loans decrease, such as a home mortgage, car loan, or home equity credit line. Other examples of places that use your credit score to determine your financial stability are insurance companiesand apartment home leasing offices.
Another downfall for consumers is that a lower credit limit means that they have less money to spend in the unfortunate event that an emergency should arise. This could include temporary unemployment or a medical issue. Many companies also charge fees and other penalties if you spend over your credit limit.
What can you do if your credit limit is reduced?
Your credit card company is required to let you know of any changes to your terms, including your credit limit. If you have been notified that your credit line is being lowered, there are a couple of things you can do.
One thing you may choose to do is call your credit card company and ask them to increase your limit again. You have a better chance of having it raised if you have a low balance, good to great credit, and have been a customer with them for a long time. It also helps if you speak with a manager instead of with the representative who answers the phone.
If the credit card company chooses not to increase your credit line, your other option is to reduce your balance by paying off some of your debt. You may also choose to transfer your balance to another credit card that carries a higher credit limit.
What can you do to protect yourself?
One of the things you can do to protect yourself from credit card companies reducing your limits or closing your account is to keep your balance low. Credit card debt is not a good thing anyways so it is a good practice to keep your balance low or at zero. If you cannot completely pay off your credit card balance, do the best you can to put extra money towards your bill every month.
To protect your credit card company from closing an inactive account of yours, use your credit cards at least once a month. You don’t have to use it for a big purchase, just something small like gas or groceries, and then make sure to pay off the balance when your bill comes.
One way to help decrease the chances of your credit limits being reduced is to improve your credit score. You can do this by paying all of your bills in full and on time every month and by continuing to pay down your credit card balances.
You can also protect yourself by checking your own credit report periodically. You can get a free credit report once a year. When you look it over, note any errors or discrepancies that may be incorrectly negatively affecting your credit score. Go about the steps to fix the errors so that your score can increase. This should help you be able to get higher credit limits and increase your chances of getting other loans.
You view online credit cards right now by using the credit card chaser tool on this page.
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