September 7, 2009

• News:  58 Million CC Accounts Take Hits

  Are you one of the unsuspecting credit card customers who through no fault of your own had your card credit limits slashed? If so, you are in good company. A recent Associated Press report indicated that over 58 million of our nation's credit card accounts experienced a credit limit reduction during the past year. While lenders say the cuts were necessary to reduce the risk associated to recording breaking numbers of credit card defaults, the move been very disturbing to Americans. Additionally, the cuts have been damaging to credit scores making it even more difficult for card owners to secure alternative methods of credit.

  Contrary to popular opinion, according to a study by the FICO organization, the majority of these 58 million credit card customers did not realize a significant drop in credit score. FICO's report indicates that approximately 33 percent of them notice a marked reduction. On the down side, the report noted that nearly three quarters or approximately 24 million of those credit card customers had their limits slashed had no negative information in their file.

  Closing a credit card account can also add to the reduction of an individual's credit score. On their web site, FICO warn consumers that cutting up their plastic can cut their score. Reducing the possibility of higher debt appears to be a responsible act, but in actuality is reflects negatively on the FICO score. The reason being, the FICO takes in a variety of variables to arrive to the one score. One variable is the individual's debt ratio. When one closes an account with a zero or low balance, they are reducing their available credit. Less available credit raises their debt ratio and in turn lowers their FICO score. Therefore, if you are considering closing an account, it would be a good idea to consider how it will affect your credit score. Additionally, if you have an account with a zero balance, you should consider using it for small purchases from time to time to prevent you bank from closing it down for lack of activity.
  
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