Is your credit score suffering without your knowledge?

By Andrea Karim. Last updated 22 June 2009. 16 comments

The warning signs were there as early as July. Even if your credit card interest rates aren't going up, your credit limit might be going down. If you're like me, and you tend to shread your credit card statements as soon as you receive them, you might want to open them up and ascertain that your credit card company hasn't suddenly lowered your limit.

It's not just your portfolio that may be shrinking lately. The spending limit on your credit card may be heading south as well. Credit-card issuers have been decreasing credit limits.

"Most banks are cutting their credit limits," says Carol Kaplan, spokeswoman for the American Bankers Association. "They're doing it to everyone."

According to John Ulzheimer, president of Credit.com Educational Services:

To maintain a good score, Ulzheimer recommends that consumers use only 10 percent of their available credit. For example, someone with a credit limit of $100,000 should never carry a balance over $10,000. But in today’s climate, however, that $100,000 limit could be cut to $50,000, meaning that the $10,000 balance now represents 20 percent of your credit limit, and thus your credit score is dinged. Your score could go down even if you regularly pay off your minimum balance and your loans.

With delinquencies mounting by the day, credit card companies are going to try to limit consumer lending, not just in new loans and lines of credit, but with existing ones. Companies are looking at your salary, current debt, job, and locale to figure out if you are a riskier investment than you were, say, six months ago.

If you haven't gotten your free credit score this year, you might want to consider doing so. Keep an eye on your credit card limits, too, to see if they have shifted. It's not against the law for a credit card company to suddenly lower your credit score below the amount you currently owe, thereby inducing a whole boatload of over-limit penalties. Remember, when it comes to debt, credit card companies can do pretty much whatever they want.

Want to protect yourself?

  • Pay down as much of your debt as you possibly can.
  • Haggle with your credit card company to keep your credit limit at its current level.
  • Keep an eye out for any mail from your bank or credit card company - don't just shred them! 
  • Know your credit score (click to read about a way to get your score for free).

I hate facing debt when I know I have a lot of it, but let's face it, folks, this problem isn't going away anytime soon.

Editorial Note: Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and have not been reviewed, approved or otherwise endorsed by any card issuer.

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Guest's picture
Guest

Point of order the recommedation is to stay within 30% not 10% of your credit limit. So if your limit's $10,000, then try not to use more than $3,333. Or you MIGHT affect your credit score. Vote Bag of Leaves.

Andrea Karim's picture

The point is that your credit limit might be lowered, so keep an eye out.

Guest's picture
Guest

This is a great article. HELOC's (Home Equity Line of Credit) are being cut at a much more rapid pace than your typical credit card. It has become standard for banks to slash them by more than 50% without any forewarning. This is happening in all markets including the markets where home values are holding (yes there are a few).

Guest's picture
Amy

Thanks for bringing this up. I probably wouldn't have thought of it.

One question, are there places where you can get a free credit score? I know you can get 1 free credit report each year but the report doesn't include the actual credit score.

Guest's picture
Michele

I think this is the biggest issue I have with credit scores. Since they base your score on usage to available credit, how is it fair that they can manipulate your score by lowering your limit, then dinging you because you have high credit usage?

Guest's picture
Guest

boy I wish I had read this a month ago. This happened to me and I did not realize it until after I bought airline tickets and received my monthly bill. I was over by $500 (as they had lowered my limit) and they wanted their money immediately. I called to ask how this could have happened and was informed that it had been reflected in my last bill ( I have to be honest. I never look at this line on my bill). By the way, they lowered my limit by $5000. I have never gone over or had a late fee in my life until now. I have had good credit for 30 years so did not think any of this would effect me. I was sadly mistaken.

Guest's picture
guest

A few months ago American Express lowered mine after I tried to get a cash advance. Since then so has Chase Master Card and one of my Visa cards. This has hurt my numbers and I am about to shread all my bills and see if they enjoy another "default."

Guest's picture
kav122

@ Amy:

Yeah, Will wrote an article on a free credit score recently:

http://www.wisebread.com/get-free-credit-score-monitoring-with-credit-karma

It really is free.

Linsey Knerl's picture

The article Will wrote was legit.  I used both the trial of the paid subscription and the free service at Karma.  Both were spot on.  Go the free way.

Linsey

Andrea Karim's picture

Thanks, guys! I never saw Will's post due to extreme wonkiness with my browser. I added a link in the article.

Guest's picture

It seems like more and more people are suffering from the credit crisis than ever before. There are a lot of people out there that believe the new presidency will fix all of this for us.

I believe that we as consumers need to fix our own credit. I help people with their credit, but I always say that each individual needs to be responsible. This article stated that you should look at your statements. Oh yeah, look at your statements, see if there are any changes and be an advocate for yourself. That is the only way you are going to survive in the next couple of years.

We are defined in this country by our credit and if you do not have credit because you feel it is unnecessary than that is just as damaging as having a bad score. You are entiled to know why you get turned down for a loan and you can get your credit reports for free once a year. DO IT, get your credit reports and look over them with a fine took comb so you can know where you stand.

Guest's picture
christine

my rating did go down in June after i bought airline tickets to texas.. i do pay for the credit monitering service on one of my CC, not sure if i should cancel. it's $8 a month.

http://engchik.blogspot.com/

Guest's picture
Erma Kelso

I don't know if this is good all over but the Houston Chronicle this morning had an ad that said for the next two days, you can pay $10 and get a pass to Sams Club for 10 Days. The holidays will come in this period of time so it sounds like a good deal to me.
This is only good if you are not a member of Sams Club now. No employee of Sams or Walmarts can do this.

Also, in my email today I got a note from Walgreens with a $5.00 coupon if you purchase $20 or more. Now, thats a good deal tool.
Last time they did that, I went ahead and bought my next printer cartridge--which I would need pretty soon anyway.
Erma

Guest's picture
Abigail

I recently took a look at my credit score through a free trial offer, since I had been meaning to do it anyway -- and this way I got a few bucks in my account.

I found out that one of my store cards was claiming I had been deliquent on over $200 -- and the account had been closed. This was back in 2000, and I was certain that every credit card I had was paid. (I, at that point, was a student and so had padding in the bank.) Not to mention the fact that I currently have a line of credit with the same store. Now why would they give me credit if I still owed them $200?

Ridiculous. A nice part of the trial is that these services make it easy to dispute the items online.

Despite all this (and a hefty balance on my cards) my credit score is still above 700, which I find incredible. And, even stranger, one of my cards actually UPPED my limit, recently. That certainly knocked me for a loop, given the current economy.

Guest's picture
Jennifer

We just checked out credit report and it said that our house was in foreclosure. That was a surprise since we pay our mortgage every month! We called the lender and they were surprised too. You have to keep an eye on your credit reports. Wierd things can show up!

Andrea Karim's picture

Goodness, good thing you checked! I wonder how they managed to flub that one up?