Credit Scores Hit by Card Limits

turnageJune 28, 2008

I ran across this news item this morning and thought it might be of interest. Seems that some CC companies are lowering the line of credit limit for some holders which may have an impact on credit scores.

Here is a link that might be useful: AP news story

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hilltop_gw

Personally, I hope consumers view this as a good thing. The credit card companies have taken a lot of heat in recent years for taking advantage of unwitting card users by providing high limits and high rates. Companies are now taking control and limiting the coffers to those who first need to learn better money management. Kind of like in another post where "the Bank of Mom is now closed." Those affected will need to learn to improve their scores and financial standing. Probably won't make some people happy but better to be held back than to get in over their heads. It's become far too convenient in recent years to obtain and utilize credit.

    Bookmark   June 28, 2008 at 8:44AM
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western_pa_luann

Sounds like a great idea to me...

I have to call them every year when they increase my limit and have them lower it back down.

    Bookmark   June 28, 2008 at 10:08PM
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ky114

There's no reason to call and have them lower the credit limit - having a higher credit limit improves your credit score because it means you are using a lower percentage of your available credit line. Unless you think you or your spouse may wake up some morning and go on a credit card- financed spending bender.

Some people argue that a lower limit helps reduce the magnitude of fraud, but it doesn't. All the companies now use fraud detection software that looks for suspicious transactions (such as transactions in several parts of the country or world within a short time, or a sudden increase in spending levels). If they see this, they'll shut down the card long before it reaches its limit.

    Bookmark   June 28, 2008 at 11:32PM
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hilltop_gw

I follow in the steps of luann, also calling to keep my card limit lower. We generally pay cash for everything (or prepay to get a nice discount) so there's no need for a higher limit and we don't care about credit score. To me a higher limit is just a temptor to use the card more, or a convenience to fraud abusers. I like to be the one in control. I realize that we're not the norm & to each his own. Those who are financially savvy & well disciplined will utilize credit cards correctly & favorably and others will struggle with card limits and credit scores.

    Bookmark   June 29, 2008 at 10:09AM
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bethesdamadman

hilltop: "... so there's no need for a higher limit and we don't care about credit score."

"...Those who are financially savvy & well disciplined will utilize credit cards correctly & favorably and others will struggle with card limits and credit scores."

Well, apparently you're not as financially savvy as you think you are because your credit score is important and affects you even if you don't have plans to apply for a loan. Did you know, for example, that your credit score has an effect on your car insurance rate? If you have a low FICO score you'll pay more for your insurance, even if you have a spotless driving record.

So you should care about your credit score. As ky114 noted, there is no good reason for asking the credit card company to lower your credit limit. There is absolutely no benefit to you for doing so, and in fact, can cost you money in the long term and in ways that you least expect.

    Bookmark   June 29, 2008 at 12:17PM
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hilltop_gw

OK so I'll plead guilty bethesdamadman- I'm not financially savvy. We've never even looked into our FICO score. When I check our credit reports there's generally no activity on it except the one credit card I have for travel purposes or the one my husband carries. We do have a business line of credit thru our local bank that we negotiate the interest (under prime) but we seldom tap into it. They told us they don't report to the major credit reporting companies.

Perhaps I shouldn't have posted. I made my comments because we've personally loaned money to people in need who focused too much on raising their credit score so they could spend more & not enough on controlling their lifestyle and saving.

We're blue-collar, self-employed, scrimped & saved when we were young and lived modestly paying cash for our home, insurance, vehicles and kids thru college (no loans). Everythings paid for with plenty left over.

We followed Dave Ramsey's principles before he was even around. Here are some of his thoughts on FICO scores "He says Americans today are "worshipping at the altar of the FICO score," and that this attitude needs to change. Ramsey calls the FICO score an "I love debt score." In other words, he says you cannot have a high score unless you carry debt. And it's not worth enduring the burden of debt in order to have a high credit score.....If you follow Ramsey's route to financial success, paying for everything in cash, you are guaranteed to have a low credit score. If you don't use credit continuously, your score will be low. But this won't prevent you from being a financial success. " Here's the full article cbsnews.com

We're probably not your typical consumer. I know I'm not very savvy. But we're doing OK.

    Bookmark   June 29, 2008 at 8:12PM
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bethesdamadman

"In other words, he says you cannot have a high score unless you carry debt. And it's not worth enduring the burden of debt in order to have a high credit score....."

That's complete bs, plain and simple. While you have to have open lines of credit to maintain a high score, you do not under any circumstances need to carry debt. I have no debt other than a mortgage and always pay any credit card charges in full every month (thus incurring no interest charges and carrying no debt forward from month to month), and I have a very high FICO score.

To paraphrase FedEx, there is absolutely, positively, no need to carry debt to maintain a high FICO score.

On a related matter, I've traveled around the world for free and stayed at luxury hotels for free all due to the points that I've received for charging purchases to credit cards and then writing a check for the full amount at the end of the month. Why would I.....why would anyone.....give up those free benefits by paying for everything in cash as Dave Ramsey suggests? Not only would I be missing out on all of those free trips, but I'd have the added "benefit" of a low FICO score thus increasing my annual car insurance premium.

What a deal.

    Bookmark   June 29, 2008 at 9:07PM
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western_pa_luann

"having a higher credit limit improves your credit score because it means you are using a lower percentage of your available credit line."

Not for me....

trust me - a $35K limit is plenty enough, especially for someone who charge little. I also charge little and pay it off in full each month (so the percentage is at or near zero most of the month...).

And that is just the limit for one of my cards!

    Bookmark   June 29, 2008 at 10:47PM
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turnage

I found out a couple of months ago that credit score also affects homeowners insurance premiums - at least with the company I'm with now. I had no idea!

    Bookmark   June 30, 2008 at 6:36AM
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bethesdamadman

turnage: "I found out a couple of months ago that credit score also affects homeowners insurance premiums - at least with the company I'm with now. I had no idea!"

Yep, it's amazing how many different areas of your life are affected by your credit rating. That's why I don't understand when people intentionally take actions that have absolutely no benefit to them and in fact are detrimental to their FICO score.

Such as calling credit card companies and asking that their credit limit be reduced.

    Bookmark   June 30, 2008 at 8:59AM
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western_pa_luann

"That's why I don't understand when people intentionally take actions that have absolutely no benefit to them and in fact are detrimental to their FICO score.

Such as calling credit card companies and asking that their credit limit be reduced."

--------------------------

If you are talking about me... I feel you are 100% wrong.

Even with my asking for lower credit limits, my FICO score is consistently in the 810-825 range.

Explain to me how my action is detrimental....
or
Explain to me why I should want a FICO score that is higher.

    Bookmark   June 30, 2008 at 9:28AM
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bethesdamadman

No, LuAnn, I was not talking about you; I was talking about people in general. Hilltop's first post stated that "consumers" should view lower credit limits as a good thing. A subsequent post mentioned Dave Ramsey's advice to pay cash for everything thereby possibly lowering credit scores. Those were the main issues that I was addressing and then added that I didn't understand why people would ask to lower their credit limit.

But since you raised your particular situation......

How, exactly do you benefit by calling the credit card company every year to have them lower your limit? Even if it doesn't impact your FICO score, at the very least it is a minor nuisance that you go through annually for no benefit whatsoever.

At least none that I am aware of. Perhaps I am wrong.

    Bookmark   June 30, 2008 at 9:59AM
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western_pa_luann

A $35K limit is enough.

Every single year they raise it.. often $5K. (One year they raised it $15K!)
I call to have it kept at $35 K.... one phone call is not a nuisance at all.

I mean really, I don't need such high limits. I charge under a grand a month... more if I order furniture or put DS's college room/board on it.

And it is paid off in full each month.

    Bookmark   June 30, 2008 at 10:36AM
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bethesdamadman

I understand that you are financially savvy; that you have good credit, that you don't incur interest charges, that you only use a miniscule amount of your available credit, and that you have no use for a higher limit. All wonderful traits.

What I still don't understand is why you bother to call them annually when they raise it. What purpose does that serve? Is there any benefit whatsoever to you for wasting even two minutes of your life each year to do so?

If it is just for some sort of piece of mind, that of course is fine. I was just curious if there was some general benefit of which I am not aware.

    Bookmark   June 30, 2008 at 12:11PM
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western_pa_luann

Because I don't want a higher limit... it IS that simple.

Spin it on you... why do *I* NEED a credit card with a $75K or even a $100K limit?

Notice, that is NEED, not WANT!

    Bookmark   June 30, 2008 at 2:43PM
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bethesdamadman

You don't. We've already established that. That was never even an issue.

I was merely trying to ascertain what purpose it served to call the credit company each and every year to tell them to lower your limit back down to $35k after they unilaterally raised it.

And now you've answered that question.

I'm not sure why we're seemingly going around in circles here. In the post to which you responded, I stated that if you did it because it gave you some sort of piece of mind, i.e., you didn't want a higher limit, that of course was fine. I was just curious if there was some general benefit to doing so of which I am not aware.

The answer, apparently, is no.

    Bookmark   June 30, 2008 at 9:45PM
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western_pa_luann

Actually, the answer is yes...
because I get the limit I want instead of the one they want to give me.
That is the general benefit to me.

    Bookmark   June 30, 2008 at 10:32PM
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western_pa_luann

To the original poster... apologies for hijacking your thread!
I won't post anymore here; no need to continue defending my actions and opinions.

Again, so sorry!

    Bookmark   June 30, 2008 at 11:08PM
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turnage

luann - not a problem - i was kind of enjoying the back and forth.

    Bookmark   July 3, 2008 at 6:12AM
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nats_357_yahoo_com

Credit Scores Hit by Card Limits

Just to add to the above article. Discover and Amex just lowered my credit limit. It was fine although I could have prevented that from happening if I didn't paid it down and resulted to my lower credit score. Discover did admitted that it was a business decision after I force them too, but an Amex agent was totally ignorant and was blaming my credit which was fine when I checked...everyday.

I prefer to "want" a higher credit limit because the "need" might come anytime. Its just my perspective.

    Bookmark   July 30, 2008 at 11:24AM
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Kathsgrdn

Hmmm, Citibank just increased my credit limit and lowered my interest rate. Probably because I have recently paid off all my other cards and closed them out. Which is what I'm about to do with Citibank too.

    Bookmark   July 30, 2008 at 2:38PM
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joyfulguy

A druggie comes into my home, duct tapes my kids' legs, hauls me down to the bank machine to make a withdrawal.

That's when I'll be glad that my credit limit is $1,000. (actually, I think that it's $7,500. - I'm 700 miles from home, so can't check my billing).

ole joyfoul

P.S. Actually, it'd have to be the cat's legs, I guess - as I have no wife, kids are in their 40s and on their own.

Since I have no dog ... cats'd have to do ... but the guy could only catch one (unless he used a mesh screen to throw over them).

Problems - all around, it seems.

ole joyfoul

    Bookmark   July 31, 2008 at 2:35AM
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