Credit Card Companies Slashing Credit Lines Sometimes Without Warning

With the economy in an ever increasing state of decline, credit is getting harder to come by. Now it seems that not only are credit card companies getting stricter on who can and can't get a card, they are also slashing available credit; sometimes without warning.

Doesn't sound like it's a big deal, but the problem that is arising with customers is that there is no legislation in place that requires the credit card companies to give you any advanced warning of such cuts. That means that without notice a credit card company can cut your $10,000 limit to $5,000 without telling you first. This is ok if you have say, a $1,000 balance, but what if you have a balance of $6,000?

Now you are stuck paying over-the-limit fees that should have never been in place. You can argue with customer service and they may indeed remove the first fee, but if you do not have an extra grand laying around to bring the account under the limit within the next month, then your problems start all over again.

Yet another problem arrives with this type of practice and that is how it will affect your credit score. Your credit utilization ratio, which is the total amount of debt you owe in relation to the amount of credit available to you, accounts for roughly 30 percent of your credit score. According to Craig Watts, a spokesman for FICO, a credit line cut that is close to your outstanding balance can decrease your score by 50 points or more if you don't have much other available credit (source: smartmoney.com). Anyone who has ever bought a house or a car knows exactly what 50 points on your credit score means; thousands of extra dollars to be paid towards interest.

Thankfully in July of 2010, a new rules being instituted by the Federal Reserve will go into effect that will require credit card companies to give an advance warning of 45 days before a credit line decrease that would incite fees can be instituted (source: smartmoney.com). But that is more than a year away and for now we are all stuck. The moral of this story is check your credit card balances as often as possible. Don't wait for the paper statement to come only to find you are bound up. If you haven't already, register all of your credit cards online and check the credit lines at least once per week. This way, you won't get caught off guard; at least not as much.How can a credit reduction lower your FICO score?www.smartmoney.com