What happens to your credit score, when your bank lowers your credit limit?
Banks and credit card companies are lowering their credit holders’ limits, sometimes with no notice.
Billions of dollars of unused credit limits are being withdrawn from Americans.
Credit scores are dependent on how much credit debt you carry, compared to how much credit debt you have open.
In today’s tight credit market, you are only supposed to use 35% of your outstanding credit, to keep a ‘good’ or ‘great’ credit score. Any higher percentage of credit use and your credit score can drop precipitously. That means you’ll now pay higher interest rates for credit and loans, because your credit score is lower.
Funny that credit card companies HAWKED all the ways you could spend their credit limits, so that you’d pay their 24-30% interest rates. Now they are changing their tune…
What if the credit card company cuts your available credit in half?
If you did the right thing and had used less than 1/2 of your credit limit, now you’re at nearly 100% of your available credit…
Who suffers?
The credit holder, whose credit score will now tank.
Has anyone thought of a way around this?
Americans are by far over subscribed on their credit cards, so 35% usage of available credit is a pipe dream for millions. Credit scores are already dropping, but this global contraction of credit will have very real, individual consequences.
Not only deep in debt, but with UNEXPECTED plunging credit scores to boot!
Having your credit slashed can not necessarily be a bad thing as it will teach more people the hard way to cut spending and not rely on credit so much. You should only use your card really in emergencies but life’s not as simple as that and especially with the financial crisis of the last year and a bit ties have been hard and people have had to learn to tighten their belts.