Financial Literacy - Credit savvy
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Credit card changes may hurt consumers

q_v2.gifBankrate's survey shows that only 6 percent of Americans have experienced a reduction in their credit line recently. A separate survey conducted by a consumer advocacy organization over the summer reported that about 20 percent of Americans have been similarly affected. Which number is more accurate from your perspective?

a_v2.gifI think it's probably more toward the 20 percent and the difference between the two numbers probably has to do with people not being aware that their credit limits have been reduced. You get these disclosures in the mail and they're in seven-point font and extremely hard to read. I've been doing this for seven years and I find them hard to understand. I think most people maybe aren't aware of the changes that are happening. The people that I've heard from, the same 6 percent that you've heard from as well, are people whose credit limit decrease has directly impacted their credit score or their ability to use their credit and they're mad. So they found out about it because it's actually directly hurting them.

q_v2.gifIf a credit card issuer lowers your borrowing limit or unexpectedly raises your interest rate, should you close your accounts or can you take some other action that won't adversely affect your credit scores?

a_v2.gifThat's a common question where a lot of consumers feel wronged by their credit card companies. They want to exercise their consumer rights and close the account. Unfortunately, that type of negative action is just shooting yourself in the foot. You always have the right to close the account, but the way that the credit scoring system is built, it's always going to have some sort of negative impact on your credit score. The older the account or the larger the credit limit on that account, the larger the damage will be to your score. What I tell people is if you really want to close the account, just make sure it's not the oldest one or the largest account that you have and just make sure that you're not going to be applying for a home or an auto loan in the next couple of months.

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q_v2.gifWhy will closing an account with a larger credit limit affect you more negatively than one with a lower limit?

a_v2.gifBecause it could negatively impact two parts of your credit score: one, the credit age if it's an older account, and then the utilization ratio, which makes up 30 percent of your score. It's actually a huge factor that a lot of consumers don't really understand.

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Product Rate Change Last week
Balance Transfer Cards 15.80% --0.00 15.80%
Cash Back Cards 16.42% --0.00 16.42%
Low Interest Cards 11.09% --0.00 11.09%
 
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