Did you know that if your credit card provider decides to one day lower your credit card limit that your credit score could be negatively affected? 
Balance-to-limit ratio- the amount you owe relative to the credit line being extended makes up roughly 30% of your overall credit score.
So if you had a credit card with a $2,500 balance and a credit limit of $10,000, you were in a decent spot (25% balance-to limit). Suddenly, you get a letter in the mail from your credit card provider stating that your credit limit on this card has been lowered to $5,000. Now you are in a not-so-good spot as your balance-to-limit has automatically increased to 50% without any activity on your behalf. (no late payments, no extra purchases…nothing.)
Hardly seems fair does it?
What I have seen is a little more drastic. Many of these credit limits are being lowered to the “actual amount owed” which puts you in an even bigger predicament. Now you would be at 100% balance-to-limit, which makes you look like someone that is more aggressive with your use of credit than you really are.
How can you avoid this?
Something that I have been teaching my clients for years is how to manage their credit in a way to NOT leave themseves open to this type of situation. How you handle your credit card balances should be in direct relationship with your overall budget and financial plan. In this new world of financial rules and regulations, we must all adjust in order to try and eliminate the chances of landing in a bad place financially through no fault of our own.
“Someone decided to lower our credit card limit and now our credit is shot” should not be a phrase that comes out of your mouth if you have prepared properly. Feel free to contact me in order to discuss this further. ”
Action Excercise: Take an inventory of your outstanding revolving debt and calculate how long it would take you to pay down the balances to 50% if your credit card providers would suddenly lower your credit line to what you currently owe.
If it would take more than three months to bring the balances down to 50% you may want to begin a savings stategy that will help you avoid this situation and the effects on your credit should this happen to you.
Preparing prior to a disaster is the best way of surviving it”
Best Wishes
6. October 2009 at 11:07 PM
This is a great post. It makes complete sense. It’s simple and very effective. Thanks for sharing this.
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Caraballo & Associates Reply:
October 7th, 2009 at 6:39 AM
The “did you know” section was created in order to share quick and useful tidbits of information. I will be adding more of them soon. Feel free to check back in on a regular basis. Thanks for reading! If you get a chance, please share or retweet with your online friends or network. Thanks
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2. February 2010 at 4:13 PM
Jose, thanks for this great bit of info. I’m wondering why the credit card companies would do this? Is there some situation/action/pattern one should avoid or know about so this doesn’t happen? Thanks! Amy
Amy Posner´s last blog ..Is Happiness a Choice?
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3. February 2010 at 2:45 PM
There are various ways to alleviate this impact and I share them in my consulting practice. But a good rule of thumb (credit and financial-wise) is to not carry balances that are anywhere near the maximum for a long period of time.
It seems somewhat obvious, I know but you would be surprised how many people don’t seem to get this. If you HAVE to have such high usage on your cards. There is obviously a bigger problem that needs to be addressed.
Let me know if you would like to know more on this subject and thanks for visiting.
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8. March 2010 at 9:54 PM
This is one animal I really don’t understand that much.
Thanks for some clarifying info about it!
Val
Val Wilcox´s last blog ..The Power of YOU!
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Caraballo & Associates Reply:
March 11th, 2010 at 2:20 PM
I hope to clarify a lot more for you in future posts. I am glad you liked it.
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8. March 2010 at 10:52 PM
Hey Jose,
Thanks for this tidbit of information. I was not aware of that. I know a lot of changes have been taking place in the credit card finance world as a result of what has happened in the banking world lately. This is just another one to be aware of. Your clients are fortunate to have someone who’s really up to date on all the changes that are taking place.
Thanks for the update.
Don Enck´s last blog ..Honey….Did You Pack The Bags?
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Caraballo & Associates Reply:
March 11th, 2010 at 2:14 PM
Thanks, this has actually been around for a long while but for some reason nobody really talks about it and I can’t figure out why.
Thanks for the visit.
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8. March 2010 at 11:14 PM
Wow, solid practical financial information we can use! I cant imagine the bind I’d be in score wise if my credit cut in half! There’s absolutely ZERO fluff in that post, unlike so much financial advice today. The action exercise is a neat tool I had not seen before to enable you to know how risky of a bind you may (or may not) be in!
Thanks!
Kimberly Castleberry´s last blog ..How To: Change Your Twitter Name Without Losing Followers
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Caraballo & Associates Reply:
March 11th, 2010 at 2:12 PM
Glad you liked it. I only hope to add as much value to you as you have added to me.
Thanks for the visit!
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9. March 2010 at 9:45 AM
Jose:
I have never heard of this before. Thanks for opening our eyes to the fact and for your advice about the future of financial changes. Your team is very fortunate to have you at the helm!
Thanks so much!
Linda.
Dr Linda Douglas´s last blog ..WHAT IS YOUR STORY and HOW WILL IT MAKE A DIFFERENCE?
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Caraballo & Associates Reply:
March 11th, 2010 at 2:11 PM
Thanks for the compliment. I will be sure and show this to them when they get cranky!
Thanks
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9. March 2010 at 4:04 PM
I had no idea that a credit card company would even do this! What are the reasons they would do something like that?
“Preparing prior to disaster is the best way of surviving it” ~ I couldn’t agree more! You really provide great value on a topic that is just not talked about that much. Thank you, Jose!
Beth Allen´s last blog ..Successful Weight Loss & Long Term Weight Management
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Caraballo & Associates Reply:
March 11th, 2010 at 2:10 PM
The system simply is not perfect and there are areas where things don’t work very well. One just has to learn how to play the game.
I am glad you like the quote, it is a Caraballo original. LOL
Thanks for the visit.
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9. March 2010 at 8:30 PM
Great information – the credit card companies drive me crazy – I’m working on getting rid of all of them. You’ve got great insight and I really appreciate your straightforward, frank approach! Thanks for this. How about a post on the mortgage situation that’s happening to so many people I know. What should people do if they’re upside down?
Amy Posner´s last blog ..Increase Productivity – Say Yes, Say No
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Caraballo & Associates Reply:
March 11th, 2010 at 2:06 PM
I know you have seen my series on my mortgage modification. There is still more to come. What specifically would you want to know about the mortgage situation? That could be a loaded subject.
Thanks for the request
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9. March 2010 at 10:46 PM
Jose,
Wow! Thank you for that insight of which i had NO IDEA about! Such great advice! Thanks for lookin’ out
Eleni Liapakis´s last blog ..If I Can Do It, So Can You!
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Caraballo & Associates Reply:
March 11th, 2010 at 2:04 PM
I am glad you liked it and hope it helped you on some level.
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9. March 2010 at 10:51 PM
I got a letter from Citibank and Amex about this. I had no idea what was going on and I had even less idea that it would negatively impact my credit.
Such an informative post. I will share with my friends and I want to talk to you as well!
Talk soon buddy. Thank you.
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Caraballo & Associates Reply:
March 11th, 2010 at 2:03 PM
Whenever you want Mr. Miller. It would be my pleasure!
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9. March 2010 at 11:36 PM
I keep reading this post thinking about how so many people can used this information. Thanks for sharing Jose!
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Caraballo & Associates Reply:
March 11th, 2010 at 2:02 PM
Thanks for reading, I hope you were able to use it to your benefit.
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