Beware of Lowered Credit Limits

Some Credit Card Companies Taking Consumers by Surprise

By Stephen Mazeika   

The definition of a shopping nightmare: waiting in a long line, getting to the cashier and having your card declined. This is only amplified when you're a savvy cardholder who regularly pays on time and manages your balance well. Debbie Morrow is a great example.

"I found out literally when I went to go shopping and they say, 'Sorry, it's been denied.' And I said, 'Denied? There's no way unless somebody stole my credit card, I know my credit limit.' And they said, 'Sorry, it's been denied.' So, I called my credit company and they said, 'We dropped your limit.'"

This is especially frustrating to Debbie since she knows that she has been a responsible card user, and has thus caused her to form her own theories. "Every month that I've ever used my credit card, I've paid it off completely and never owed any interest so they're not making money off me," she said. This is a disturbing trend that has unexpectedly surprised many consumers like Debbie and has left many people frustrated this holiday season.

Companies May Be Taking Advantage of Contractual Clauses

 
This phenomenon would seem like an illegal practice, but Pat Coakley of the Better Business Bureau has another explanation.

"It's our understanding that the credit cards companies may legally do this, and I'd bet that it's the fine print," Coakley says.

This explains how many people have been unexpectedly caught off guard at the checkout counter, with little or no warning from their card provider. Besides seeming to be principally unfair, this further hurts consumers by dropping their credit score in many instances. "All of a sudden if they drop that down to $1,500 or $2,000 and you've got a $1,000 balance, it doesn't look good for you," Coakley said.

Experts believe that companies may be resorting to this practice due to worry about risky investments and are shortening limits as a result. It doesn’t help that people may be affected regardless of their balance or payment history and their credit scores, which is evident in the case of Debbie Morrow.

Tips to Help Consumers Avoid This Problem

 
• Monitor your credit score: your credit score could be affected with a lowered credit line

• Call your credit card company right away for an explanation if you do notice changes in your limit

• Check your statements very frequently, especially looking for changes in your interest rate or credit limit

• Avoid hastily closing of accounts; this could further adversely lower your credit score and leave you in a worse position than before