Credit card companies have been almost Monty Python-esque in their gluttony for cash in the past few decades. In fact, the motto for the industry might have been “if it has a pulse, give it a card.”
But now, card issuers are drowning in toxic debt and are looking for ways to cut both costs and risk. That’s why we’ve seen a huge upward spike in credit card limit cuts.
How big a spike? According to a recent Federal Reserve survey, approximately 65% of tightened their lending standards on credit-card loans last year.
The National Small Business Association (NSBA) says in a recent survey, 75% of respondents report their card terms had “worsened”. And the American Bankers Association says that even credit card holders with credit scores of over 720 are seeing their limits cut.
Getting your card limit cut could mean bad news for your credit score. Card score issuers place a high premium on the “gap” between what you owe and what your credit limit is. So if your limit is slashed, your gap is narrowed and your credit can suffer.
So what can you do when your card issuers get your card in a vise and won’t let go?
Here are three steps you can take right away to fight back:
Contact your card issuer – Card companies profess to be tough on restoring original card limits, but they can morph into big softies if you threaten to walk away. So when you find out your limit is cut, get on the phone, ask for a decision-maker (usually a manager) and demand your original credit line back. Make sure to mention any bonuses or raises at work, any inheritance, or other favorable financial shift, if applicable. Even if you don’t get your original credit maximum back, you can still negotiate and get a better deal than the one that’s on the table.
Threaten to Walk Away – And Do It If They Won’t Budge – If your card issuer won’t listen to reason, and your credit rating is in fairly good standing, tell your card issuer you’ll cut bait and leave. That should get their attention and a more favorable credit allowance for you. If not, start looking around for other, better card deals. Start with BankingMyWay.com’s Credit Card Search.
Cut Your Card Usage – You can either “opt-out” of a card limit threat (by rejecting the limit cut, which may mean you can’t use your card) or keep your card minimum as low as possible, but still keep the card active. Aim for having an account balance of less than 30% of your maximum card limit. Only use the card sparingly, keep the credit “gap’ as wide as possible, and you should be able to keep your card and use it when needed.
Just because your card issuer says it wants to cut your card limit doesn’t mean you have to go along with the deal. Use leverage and good financial sense, be prepared to walk if you have to, and you’ll be in good shape.
—For the best rates on loans, bank accounts and credit cards, enter your ZIP code at BankingMyWay.com.