Some Companies Lowering Credit Card Limits

Sept. 18, 2007 (KABC-TV) (KABC) -- Do you know your credit limit? When it comes to credit cards, you're probably used to it going up, up, up since the industry is known for automatically increasing spending caps. But have you looked at your statement lately? Some issuers are now lowering limits. Some say the practice is good for consumers, others say it could put you at risk. That's because lowering your credit limits could also lower your credit score.

Len Bryan likes to keep tabs of his credit card bills online. There's usually no problem, but one day that changed.

"I noticed that there was no credit available anymore on one of the accounts," Bryan said.

He hadn't made any purchases on the card, there were no unauthorized charges, and he always paid on time. So what happened? His credit limit suddenly dropped by nearly 90 percent.

"I was pretty well shocked 'cause I had no idea that this was going to happen," Bryan said.

"It is a trend in the credit card industry right now. Instead of upping your interest rate, which was commonly what they did, they may lower your credit limit," Linda Sherry, of Consumer Action, said.

In a recent Consumer Action survey, 75 percent of the banks questioned said they lower credit limits as a way to manage risk. The banking industry says it's meant to protect consumers.

"It also helps consumers to avoid becoming over extended with debt that they can't manage or repay," Nessa Feddis, of the American Bankers Association, said.

A change can stem from late payments of any kind, a drop in your credit score or the addition of new lines of credit. Bryan found out limits on three cards were actually cut after he took out a home equity loan to pay off some debt.

"Taking out the home equity loan may have possibly been the factor that lowered the credit line," Bryan said.

Consumer advocates say lowering limits is a better way to manage risk than hiking interest rates, but these cuts can lead to trouble if you are not aware and prepared.

"If you don't know your credit line has been dropped, you could go over the limit. And, with most card issuers, that means you'll pay a hefty over the limit fee," Gerri Detweiler, a credit card expert, said.

You also have to watch your credit rating.

"A third of your credit score takes into account how close you are to your credit limits on your credit cards. So, a lower credit limit may make you appear maxed out on your credit card and that in turn can really affect your score," Detweiler said.

You must be notified by mail if your limit is lowered, but consumer advocates say you could miss it in the mail.

"You think it's a piece of junk and you throw it out. So, there's many cases where a person might not know that they're being notified about a credit limit decrease," Sherry said.

After Bryan made his first discovery online, he was on the lookout for notification, which did arrive in the mail. He's seeking financial advice before contacting the companies. In the meantime, he has other cards to use.

"So, I'm not totally stuck," Bryan said.

Consumer advocates suggest checking your credit card statements online regularly to keep a close eye on your available credit.

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