Credit Card Situation

[oybolshoi]

Actually, doesn't lowering the limit with an outstanding balance, lower one's credit score? I thought that one part of a credit score was percentage outstanding against available credit?

That can impact someone who has minimal credit history or just one card with a high outstanding balance relative to the credit limit but for someone with a seasoned credit history with good repayment and minimal inquiries for new credit it should be a non-factor.

Having said that I can tell you that when I used to work in consumer lending we paid very close attention to a potential borrower's total outstanding revolving balances relative to their total available revolving credit.

And on the original topic ... on a revolving account the creditor always has the right to reduce or even terminate the credit line even if it's being paid as agreed. Heck, they can do it on a secured credit line too. It's in the fine print that no one ever reads.

 

[AuntieM03]

That can impact someone who has minimal credit history or just one card with a high outstanding balance relative to the credit limit but for someone with a seasoned credit history with good repayment and minimal inquiries for new credit it should be a non-factor.

Having said that I can tell you that when I used to work in consumer lending we paid very close attention to a potential borrower's total outstanding revolving balances relative to their total available revolving credit.

And on the original topic ... on a revolving account the creditor always has the right to reduce or even terminate the credit line even if it's being paid as agreed. Heck, they can do it on a secured credit line too. It's in the fine print that no one ever reads.

Do they also have the right to charge you an over limit fee? That just doesn't seem legal. I wouldn't mind if companies lower my limit. I would be angry if I was dinged for fees when I always pay on time, and stay within my current limit.

 

[pr surfer]

I just did a google search and don't see anything in the news about this?

Maybe it hasn't happened to enough people to warrant making the news yet? I know there's been a story on consumerist of a ridiculous large credit limit reduction. All I know is what has happened to me and what I was told by the Citi customer service.

 

[oybolshoi]

Do they also have the right to charge you an over limit fee? That just doesn't seem legal. I wouldn't mind if companies lower my limit. I would be angry if I was dinged for fees when I always pay on time, and stay within my current limit.

I never worked for a credit card company so I'm not sure legally what they can and can't do with their overage fees in this kind of situation. The best thing for the customer in this case would be for the creditor to freeze the limit at the current outstanding balance. That way the borrower couldn't go over the new limit and wouldn't be penalized unfairly.

I wouldn't put it past these companies to try to sock people with overage charges and I'm cynical enough to think that's part of their strategy right now. I would strongly encourage anyone in this situation to speak with a supervisor at their credit card company as soon as possible to try to head off any potential problems before they happen.

 

[oybolshoi]

Maybe it hasn't happened to enough people to warrant making the news yet? I know there's been a story on consumerist of a ridiculous large credit limit reduction. All I know is what has happened to me and what I was told by the Citi customer service.

I can tell you that GMAC cut off our home equity credit line in August. We hardly had anything outstanding but they sent us a letter stating that our property values had decreased to the point where our home wouldn't support the credit line. They didn't have an appraisal to back up their claim - they're just using a formula approach for home owners across the country without taking individual markets into consideration. I forget where I read the article but I thought I saw something about a month or so ago that indicated GMAC was pulling back on almost everything but conventional first mortgages. They're going through their portfolio and dumping everything they can to minimize additional risk and free up additional cash flow.

The funny thing though is that they're dumping good customers and good risk along the way. Our first mortgage is at a 60% loan to value based on an appraisal from three months ago ... that means by traditional lending standards we have an extra 20% in equity to allow for a credit line secured by a second lien. That would put us at 80% loan to value only if we drew the credit line up completely (which I would hope would never happen) and it will still give GMAC a 20% cushion in case my hubby and I decided to trash the joint and default on our mortgage.

It's a knee-jerk reaction now. The credit pendulum swings too far one way and then swings too far the other way to over-correct. It's going to take a while for everything to calm down and get back to normal ... whatever the heck that is now.

 

[rparmfamily]

This is one of the side effects to the current economic problems. Banks,etc have less money to lend, so they are reducing credit where they can since they are also having troubles borrowing money.

Have her contact JAG/Army Legal.

 

[DisMN]

I'd sure like to know what companies are starting to cut limits. Anyone? Discover, American Express, Chase? Or is it the local department store type cards?

Mine have been known to raise my limits, so I guess they can just as easily lower them. But that stinks to have them lowered so much that the balance now exceeds the limit. They really should allow the consumer a grace period to clear off the overage without penalty.

Discover, yep. I paid off our Discover card several weeks ago in anticipation of wanting/needing to use it for an upcoming purchase. Guess what? The balance reads zero but available credit is listed at zero as well.

Talk about frustrating.

 

[themilesfamily]

Discover cut my husband's credit limit -- I don't know by how much.

 

[TxDsnyGrl74]

On yesterday's Oprah, she had Susie Ormand and Ali Belchi (sp?) from CNN discussing the crisis in very basic terms so people can understand how we got into the mess. Susie very clearly stated that credit card companies would be lowering available credit to their customers, since less credit is available to them. Susie also indicated that yes, your FICO score is wrapped up in your debt to available credit ratio on your credit cards.

Below is a link to the show and what they said to do during the crisis. Mostly common sense stuff but might be helpful to some.
http://www.oprah.com/slideshow/oprahshow/20081003_tows_economy/1

 

[mickeysgal]

Discover, yep. I paid off our Discover card several weeks ago in anticipation of wanting/needing to use it for an upcoming purchase. Guess what? The balance reads zero but available credit is listed at zero as well.

Talk about frustrating.

So effectively they're closing your account? A zero available credit line?

 

[MoniqueU]

I have had my amex cards limits cut but above what I owed on them. Our credit is NOT pretty right now so that didnt come as a shock to me but out of all our credit card companies we have had over the years amex is the best.

 

[DisMN]

So effectively they're closing your account? A zero available credit line?

It appears that way.

 

["Got Disney"]

I have not read this whole thread because it is late so I will just say that yes they can. They will look at her income and credit line and if no longer matches with a % of income to ratio of credit with all cards they will drop it.

They just did that with my equity line. They cut it off. We have a lot of cards but no balance on any of them and most of our cards are at least $25,000 credit limit but have no balance. So they have left them alone.

DH makes $250,000 a year and we only had a 60,000 equity limit and only dept we have( besides our mortgage) is 40,000 on that line....yet they cut us off because our house went from $800,000 down to $600,000 and we owe $300,000 on the mortgage still so the percentage of house to equity limit was not satisfactory so they cut us off.

So if they see that you have a balance on cards and a high credit limit and not enough moneys to pay them off and if even one payment was even 1 day late not only will one card raise your interest and cut off credit all card companys can do it over another companys card... they can also send you a cancellation letter if they so choose.

Does this make sence...I'm tired

 

[Michelle67]

Oh my goodness, that is just horrible!

 

[RitaE]

I just did a google search and don't see anything in the news about this?

http://www.smartmoney.com/deal-of-t...owering-Consumer-Credit-Card-Limits&hpadref=1

It's actually been happening for the past year, it is just heavily in the news right now with the whole "Credit Crunch" thing being headline. Small Businesses especially are finding their credit cards and lines being drastically reduced, even those that are well performing and have no blemishes.

Anecdotal evidence suggests that a phone call will likely get the over the limit fee eliminated, but they will want the balance down to under the limit sooner rather than later.

here's another:
http://online.wsj.com/article/SB122273798697188787.html?mod=googlenews_wsj