It may be only a matter of time
before you get a notice in the mail stating that your
borrowing limit has been reduced. Already, some cardholders
have had their credit lines slashed despite spotless
payment histories and excellent credit scores.
About one in five cardholders had their credit limits reduced recently, according to a July survey by Consumer Action, a San Francisco-based consumer advocacy group. Roughly the same percentage of cardholders also reported being very close to their limit on at least one credit card, according to that survey.
Bankrate's own survey indicates fewer Americans have been affected so far -- 6 percent of respondents said their credit line was cut, up slightly from 5 percent in August. But some financial analysts predict the consumer credit contraction is on the verge of becoming severe. Meredith Whitney, a banking analyst at Oppenheimer & Co., predicts card issuers will cut credit lines by $2 trillion-plus over the next 18 months.
"Our surveys have been showing this
as a practice (lowering card limits) for at least
three years," says Linda Sherry, a spokeswoman for
Consumer Action. "I think it is stepping up somewhat
in this economy."
Some of the factors that could trigger
a credit line decrease include a decline in cardholder
credit scores, late payments and account balances
that are too close to credit limits, according to
Consumer Action's 2008 credit card survey.
Federal law requires that you receive
a notice in writing of a change in your annual percentage
rates (APR) at least 15 days' prior to the effective
date, but the 15-day rule does not apply to credit
limit changes.
If your credit card company lowers your
limit, all is not lost. You may have options, including
persuading the company to reverse its decision.
Make the best of lower card limits
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Johann
Beukes, a software engineering manager
for Bankrate Inc. based in North
Palm Beach, Fla., logged on to American
Express' Web site recently to make
a payment and discovered his credit
line had been reduced by $5,000,
despite the fact that he's been
a cardholder for more than 10 years
and has a credit score north of
800.
"I called them up the next day and asked why they were doing this, since we've never had a late payment," he says.
After lodging
complaints with three company
representatives, Beukes finally
was told that his credit line
was lowered because American Express
wants to reduce its risk because
of the credit crisis. Nothing
personal.
Beukes gave
up trying to restore his credit
line -- for now. "I was told that
I should call back again in about
six months and request an increase,"
he says.
While some card issuers won't reverse their policy, it doesn't hurt to try.
"The technique of complaining in this current environment is particularly effective because the card industry has a black eye right now," says Curtis Arnold, founder of Cardratings.com.
Arnold estimates it costs around $300 in marketing fees to replace a lost cardholder. He says you should ask to speak to a manager if you find you're not getting anywhere with a customer service representative -- just be sure not to lose your cool. As the saying goes, you catch more flies with honey than vinegar.
There's no
guarantee it will work, but if
you're a good customer, your chances
of success are better. A good
payment history with your card
issuer, good credit and the ability
to pay off your balance could
tip the exchange in your favor.
So can a mild threat.
"If you threaten to take your business elsewhere, they're usually going to listen," Arnold says. "They're hurting financially, and they don't want to lose your business."
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