This week I spoke to two clients who received letters from American Express, advising that due to the large outstanding balances on their residential mortgage loans, American Express had reluctantly decided to lower the credit limits on their respective accounts.
Apparently American Express apologized for this action but claimed it was decided upon after a thorough review of the client's accounts.
For weeks Suzie Orman has been warning that banks would take this action to curb credit and warned that such action would have the effect of lowering individual's Fico Scores because the credit used as a percentage of the new reduced balance would increase - making the card appear "maxed out". The result of a lower Fico Score could mean higher interest charged by lenders.
Many sites are now discussing the severe implications of the decrease in credit card limits, which could snowball into more serious debt problems. The consumer credit-card web site Cardratings.com, which features an active community forum on credit-related topics, has reported dozens of recent posts complaining about credit-limit cuts.
Check your own limits to ensure there's no surprise waiting for you.
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Stewart,
This sounds like bad news for most of the country.
Ann
I got that same letter from AMEX several months ago. After they chopped my line of credit. My credit score plummetted. As my other card issuers learned my score crashed, ~they~ reduced ~their~ credit lines, and my score dived some more.
It was a tough decision to pay them all off instead of keeping the cash liquidity, but with overlimit and interest fees adding up, I think it was the better choice.
Oh wow. Thanks for this information Stewart. Now if any of my clients call with this scenario I will know what to say. I rarely use a credit card so this won't affect me.
Pamela - That's actually something else to watch for .... if you don't use your card, the Credit Card Companies are also closing accounts for being dormant.
Thanks Stewart. I better call my credit union!!
I read various articles speaking of the same subject. Most also said if you do, in fact, have good credit with a score above 720- you probably will not have your line decreased. Or, if the line if decreased, call up the credit card issuers and threaten to close the account all together. If you have good credit and use the card, the threatening phone call may work.
Stewart, why are we surprised? The credit card companies are the very ones that teased the public with great rates, only to raise them as high as 39% for being so much as one minute late. My FICO score is in the 800's. If they try any funny stuff with me that lowers the score I work so hard to maintain, watch out! Thanks for the info.