December 8th, 2008
Reduced Credit Card Limits Could Hurt Your Credit Score
According to prominent bank analyst Meredith Whitney that the US credit card industry may reduce credit lines by over $2 trillion dollars over the next 18 months on fears of a worsening economy and regulatory changes. If this were to be true, it could mean that credit card limits could be reduced by as much as 45%. Regardless of the actual amount and severity of the credit line pull back, most credit card companies are more cautious about new customers and existing customers alike.
While you many not think this affects you cause your credit cards are not maxed out, there may be other repercussions. Most notably if you carry a balance and your credit limit is lowered, your credit card utilization (credit card balance/credit limit) may increase. Higher credit card utilization could then lower your credit score which could then increase your interest rate or lower your limit again. It is a vicious cycle and can be very unfair. Here are a few tips to avoid the trap.
Keep an eye on your credit cards limits. Your credit card company should notify of any impending changes. But with all the junk mail it can be easy to miss. Almost most people take their credit limit as a constant and only look at balances.
Try to lower your credit card debt. This is easier said than done but this should be a goal at all times to improve your credit.
Have several credit cards. Having a 3-6 credit cards gives you options should one of your issuers lower your limit or increase your interest rate. If you are looking for a card, these are some of the best credit cards for each credit range.
Keep your balances on any given card low. High credit card utilization on any single card can be a sign of future risk so make sure that your credit card utilization is lower than 35% on any single card.
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as to credit card limits and your credit score, is your credit score only negatively effected when you carry say 80% of your credit limit from month to month?
Another words is your score getting hurt if you use almost all of you limit but pay it off entirely each month?
Because I am 18 and I’m trying to build credit. I have one credit card with 800 limit and use almost all of it each month, but always pay it all off right away. Is this bad? Or does i only hurt if I carry the limit?
Also, this is off topic, but does anyone know if you credit score displayed on the main page is you real score, or one estimated by CreditKarma
Carrying a balance of 80% of your credit limit is not good for your credit score. We are working on an article that shows average scores by credit card utilization.
As for the credit score, it is a real score created by TransUnion. It is a score sold by many other sites.
Definitely a cycle that you don’t want to fall into. The idea of looking at utilization card by card seems to be overlooked. People seem to be only concerned with their total utilization.
I was just thinking about the same thing when I came upon this post on the internet. Now my question have been answered.