Understanding Cuts to Your Credit
The recession has been hard on a lot of Americans, in part because the decreased availability of credit now means that many people are seeing their accounts limited or closed for what seem like mysterious reasons.
Here’s a look at some potential explanations for why you may have seen your limit shrink recently.
- Changes to Your Credit Score: Many card issuers have a certain minimum credit score cardholders must maintain in order to keep their accounts open. If your score falls below that number, you may see some of your credit yanked.
- Negative Credit Action: Opening a new credit account, defaulting on an account, missing a payment, having a credit inquiry (which usually happens when you apply for a new line of credit), changing how much debt you carry, using your cards more than usual and having too many of your accounts in dispute could all cause one of your card issuers to close or limit your account.
- Neighborhood Problems: In some cases, living in “high risk” parts of the country (where unemployment or foreclosure rates are especially high) could be enough to affect your credit.
- Tough Times: Sometimes financial difficulties that haven’t directly affected a credit account can cause a card issuer to preemptively alter interest rates or credit limits. Such difficulties could include job loss, divorce, or application for a financial hardship program.
- Lack of Profitability: Some behavior can be good for you but unprofitable for the card issuers. Such behavior includes using the card too seldom, paying in full each month, or having stopped using the card altogether, and can result in availability cuts.
- Change of Habits: If you suddenly begin missing payments on one card, develop a patter of usage that seems too risky or convert from a “transactor” (who pays in full each month) to a “revolver” (who runs a balance), your issuer could decide to change your credit.
If you notice that one of your credit card issuers has cut your limit, raised an interest rate or otherwise limited your credit usage, don’t assume you’ve done something wrong. Call the issuer with a copy of your latest bill in hand and politely ask for more information about the changes to your account.
That way, if there’s been a mistake, you can correct it before it affects your credit further. And if there’s been no mistake, at least you won’t be in the dark about your cards.
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