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The importance of monitoring your card’s credit line

By Lucy Lazarony · Bankrate.com
Monday, December 6, 2010
Posted: 3 pm ET

Have credit card debt? Be sure to monitor your credit limits from month to month.

The Credit CARD Act does not require issuers to give 45 days' advance notification for credit limit decreases. So it's a good idea to check the credit limit on each of your credit cards each month, especially if you carry credit card debt from month to month.

An unexpected and sharp decline in a credit card's credit line will limit your purchasing power with the card, and it can also hurt your credit score.

Your credit score considers how much of your available credit lines that you use every month. This is called a credit utilization ratio, and as your credit utilization ratio climbs your credit score dips. A shrinking credit line will nudge your credit utilization ratio higher causing your credit score to drop.

To calculate your overall utilization rate, add together all your credit balances.

Next, add together all the credit lines on your open credit card accounts.

And now divide the sum of your credit card balances by the sum of your credit lines. The two-digit number that you see after the decimal point is your overall utilization rate.

To calculate the utilization rate on an individual credit card, simply divide your monthly account balance with your credit line.

To bolster your credit score, it's a good idea to use less than 30 percent of a card's credit limit in any given month. Using less than 10 percent of a card's credit line will provide the maximum score benefits.

Paying down credit card debt will help to boost your credit score as well.

Has a card issuer slashed your credit line? Here are six smart ways to handle a reduced credit line.

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