The first two posts in this series were about home and mortgage problems. I think you’d agree that the problems there are the biggest nightmare right now. Even if none of those problems impacted you, I bet you know somebody that has been hit hard – I know quite a few personally.
But, I’d also wager that you know even more people that have been bitten by the credit card companies lately. You could spend days listening to people rant on this, and there are too many different topics to count.
But, this seems to be the toughest issue for people to find information about, so I’ll take a stab at it…
My Bank Is Dropping Me (My Credit Limit, That Is)
This issue has had national news coverage, so it isn’t hard to guess that it is a problem for many people. Most, if not all, of the biggest credit card issuers have been dropping people’s credit limits significantly.
It is an unfortunate part of life right now that more and more people are digging into their credit cards to help pay the bills every month. So, it seems almost like the credit card companies are doing their best to hurt people and take away that (hopefully temporary) lifeline on purpose.
Of course, no human is sitting around at those companies looking at your situation and messing with you on purpose, but their financial and statistical computer models sure are. They simply decide that their company has too much risk, and they try to reduce that risk by lowering the amount of money they are lending.
Although it sucks, that is all pretty obvious stuff. But, there are a couple other things that come out of this indirectly, which makes it a bigger punch in the gut.
Special Credit Offers
Even up until this summer, many banks were still extending 0.99% or 1.99% interest rates for their short-term “special” offers, and 3.99% to 5.99% even for their permanent offers. With the credit crunch right now, do you think those companies like having a bunch of money out there at that low rate of return (to them)? Nope, not at all.
Sure, they bank on you taking a long time to pay it off, collecting a bunch of interest and fees the whole time. But, if there was a way that they could easily break their special offer so they could charge you more, do you think they would do that? Absolutely.
You know how credit card offers only stay in effect for their customers in good standing? Well, they can’t really make you send them a late payment (which kills all your special offers)…but they can “help you” to exceed your credit limit (which also cancels all your special offers). Starting to see the way they think? Don’t ever forget it – they’ll do whatever is in their best interest every single time.
Finally, just for future reference on this topic – credit card issuers can change almost anything regarding your rate and terms with only 15 days notice to you. This might be changing, but so far it hasn’t – so be careful and try to always think “worst case” on any credit card balance you carry.
Balance To Available Credit Ratio
So let’s say you’ve been carrying a $3,600 balance against a $10,000 credit limit on a credit card. You’ve made all your payments perfectly, and your balance is only 36% of your credit limit. You’ve got plenty of room left, and obviously aren’t struggling or having any problems. Your credit score is still above 700, and all is well.
Then, your bank’s computer decides that $5,000 is a better credit limit for you. You are annoyed, but you don’t need to charge any more on your card anyway, so you just curse them a few times and forget about it.
But, behind the scenes, they did just hurt you. Your $3,600 balance is now 72% of your new, lower credit limit. Once they send their monthly update to the credit scoring bureaus, your new, lower credit limit is picked up. The computers at the credit scoring bureaus think “uh-oh, John Smith went from a 36% ratio to 72% ratio – he must be having problems…”
In fact, high ratios are one of the things that hurt your credit score the most. So, now your score takes a 50 point dive – when you still have a perfect payment record and have done everything right!
Yeah, and if you are thinking ahead a bit on this one, you’re right – when you want to buy a new car in a few months, you are going to pay a little higher interest rate because of your lower score.
By the way…the same bank that started this in the first place might look at your updated credit score down the road – which again, they caused – and do something else negative because of it, and that cycle goes on and on.
So, yes – this is something to worry about. If it hasn’t already happened to you, it might very soon.
What To Do Now
Pay close attention to your statements every month. If anything has changed, call your credit card company right away. You can’t strong-arm them like you could in the past, but if you have decent credit and pay your bills on time, take it up the chain. Much of the time the first-level customer service people don’t have the authority to increase your credit limit back to where it was, so escalate it to a manager if necessary.
Be nice. State your case clearly, and illustrate all the positives about your account for them. Tell them why you are not a risk and that you just want a real person to review your situation instead of a computer program. They might still think you are making the same salary that you were making when you applied for that credit card 10 years ago after all.
Most of the time that is enough to get it done. If not, push a little harder, but still…be nice, and don’t threaten them or talk down to them. Your position isn’t as strong as it was in the past, and they know that.
If they won’t do it, don’t tell them to cancel your account like you probably want to (I would too). Just say thanks, hang up, pay your next monthly bill even earlier than you normally do, and repeat the above process. It usually works.
Any thoughts or experiences on this one? As always, we love your comments – so drop in a quick one now!
Until next time…
Scott
