Keep your credit card limit from being slashed without warning

an illustration of a meat cleaver chopping credit cards

Credit card limits are being slashed without warning as banks minimize risk, but the practice hurts credit scores. Think Stock photo.

A final round of new credit card rules designed to protect consumers goes into effect on Aug. 22. Banks and credit card companies have been raising interest rates and fees and slashing credit limits in the run-up to the new credit card rules. Slashing credit card limits is a common practice during economic hard times. But cardholders’ credit scores get hurt by it, through no fault of their own. But there are steps credit card users can take if they want to preserve their current credit limits, or even boost their credit limits.

Credit card limits slashed across the board

Credit card companies have been cracking down on cardholders during the recession and its aftermath. Many credit card-issuing banks are trying to rein in risk amid rising delinquencies and charge-offs — and before the final round of new credit card rules goes into effect. Bankrate.com reports that even cardholders with good credit scores are getting their credit card limits slashed. Dennis C. Moroney, research director of bank cards at TowerGroup, told Bankrate that credit card companies are reducing credit lines and closing accounts. He said that even people with higher scores that have been cut down from 750 to 720 are having trouble getting credit.

Credit limit cuts hurt credit scores

More than 60 million cardholders have had their credit limit slashed over the past few years. Credit Card Guide reports that many people hit by credit limit cuts haven’t committed any  of the typical “risk triggers” banks use to assess credit worthiness, such as regular late payments or high credit card balances. Credit limit cuts aren’t just a major inconvenience. For cardholders with outstanding balances they can hurt credit scores as well. With the debt-to-credit ratio weighing in second among the most important factors contributing to credit scores, credit line cuts are no small concern.

How to protect your credit card limits

For cardholders who want to keep their current credit limit and perhaps even get a credit line increase, Eva Norlyk Smith at Credit Card Guide offers tips. First of all, simply call and ask. Most credit card accounts are eligible for credit limit increases once a year. Always pay off the balance in full every month. And use the credit card a lot, but don’t exceed 50 percent of the credit line. Always send in the payment on time. Don’t cancel any credit cards, don’t apply for any new credit cards and never ask a credit card company to pull your credit report. A credit check hurts a credit score as much as applying for a new credit card.

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