December 3, 2008
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News: Ya better Watch out…Credit Cards Are Slashing…Today
Reports are coming in of some big surprises for credit card shoppers this season and very soon. After gathering all their items in the shopping cart, their credit card charges will be rejected. The word is that many of the major credit card issuers are making major cuts in credit limits to a large number of holders. Among those major lenders are Discover, Citibank, Bank of America and American Express.
The first people axed will be those with high debt ratios, those making late payments and those without good FICO ratings. It doesn't end there but these are first in line. After that come credit card holders who've kept their nose clean with their current credit card but who have a checkered past or else have problems elsewhere. Even geographics are coming into play. Those who live in depressed areas with high foreclosure rates may be put on the block.
Ramifications don't stop there either. A credit card holder could inadvertently overcharge the card and get slammed with stiff penalties and interest hikes. Perhaps, even worse, once these limits are lowered, FICO ratings will very likely take a hit. Debt to limit ratios can count as much as 30 percent of a FICO score. The heaviest blow comes when a holder owes more than half of their limit. So, if a person owes $4,000 with a $10,000 limit their ratio is only 40 percent. Now, if that limit is dropped to only $5,000 their debt ratio jumps to 80 percent overnight. Even if a person could achieve the impossible FICO rating of 900, a thirty percent drop to 600 may disqualify them any more credit at all.
While there's still time, a credit card holder may be able to avert such a catastrophe by immediately paying down their balance to less than 50 percent of the new limit (less than 30% is better). The holder may be able to negotiate leniency and have penalties and rate hikes waived one time. They may be able to reinstate a slight limit increase to alleviate the brutal debt ratio effect. Check ahead online to verify spending limits before making big purchases. Request early e-mail notification for upcoming account modifications. Work with the rating agencies to find ways to improve FICO ratings.