Credit Card changes could harm you >> Borrower beware
My good friend Gail Barrutia-Kovash with Wells Fargo Home Mortage recently shared some information with me that could have a severe affect on credit card users that neglect to carefully read any notices that are not invoices from their credit card companies.
About 85% of banks (up from 60% in July) reported having tougher lending standards for large and middle-market business loans and about 75% of banks tightened their lending standards for small firms over the same period.
As for consumers, anyone who swipes those credit cards a lot could get a rude awakening. Nearly 60% of banks responding to a recent survey stated they have tightened standards on existing credit card customers. About 60% of bank respondents reported cutbacks on credit card accounts granted to customers who did not meet their credit-score thresholds.
About 20% of all domestic banks reported having reduced credit limits on existing credit card card accounts to prime borrowers. In order for banks to do this they must notify borrowers but how many of us carefully read mail received from our credit card companies that is not a bill? If you are not aware that your credit limit has been reduced and continue charging, going over your new credit limit, it could have a significant negative effect on your credit rating.
By law, credit card companies can change your credit limits but they must notify you. If you are concerned contact your credit card company and find out what your limit is. There is a very good chance your credit limit has been changed, even if you have had a good credit history with your credit card company.
The credit-scoring algorithm looks at the credit utilization rate for each active account and separately, a person's credit usage for several accounts all together. Lets assume you have 4 credit cards with a $5,000 credit limit on each card. Three of your cards have zero balances but on one card you have a $4,000 outstanding balance which represents an 80% utilization rate for that card. Being that close to maxing out that one card will hurt your credit score, even though you have not maxed it out and you have 3 other cards with zero balances.
Find out what the credit limit is on every credit card you own and if at all possible have the limits increased which is hard to do these days. Make sure to keep your spending and usage of these cards under control. Many lending institutions have tightening their belts considerably with the credit crunch which has swept the nation.
Don't assume that since you have always paid your bills on time that everything is business as usual with your credit card companies. Take the time to read all the notices you receive and if you have questions, make sure and contact your credit card companies and find out what your interest rates and credit limits are. You will be glad you did.