Card Issuers May Cut Your Credit Line as You Pay Off Your Balance

The following is a little warning one of my friendly readers shared with me, which I felt should be passed onto the rest of you visiting this blog.

By now, we’ve all heard about folks like American Express cutting credit lines to mitigate risk, while other card issuers like Chase are charging fees and upping minimum payment requirements.

But it seems to be getting even nastier than that, according to an e-mail I received from the aforementioned reader.

The scenario works something like this:  Your credit line is cut to an amount somewhat close to your current account balance.

Old Credit Line: $10,000
New Credit Line: $5,000
Current Balance: $4,800

In an effort to reduce the outstanding balance in relation to your new credit line, knowing credit utilization is a big part of what makes up credit scoring, you decide to make a sizable payment to create a buffer.

You pay $1,000, which lowers your current balance to $3,800, giving you breathing room of $1,200 in regard to your newly established credit limit.

Shortly after making the payment, the card issuer lowers your credit limit a second time, to say $4,000.

At this point, you’re presented with the same dilemma you faced prior to making the $1,000 payment.

Now it’s unclear how long this cycle will repeat itself, and how many consumers are actually being affected, but it looks like credit card issuers are playing for keeps now.

The power has certainly shifted in a short period time, seemingly overnight.

Gone are the confident balance transfer arbitrageurs, now replaced by increasingly desperate card holders quickly running out of options.

Remember, the house always wins.

(photo: benimoto)

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