How to Blow Your Credit Limit -- Without Spending

[gonzo]

If you haven't had the credit limit cut on your credit card recently, count yourself lucky. Risk-averse card issuers are getting slash happy. And while many cardholders gripe that such cuts slice razor-close to their balance amounts, for an unfortunate few the cuts go far deeper: below what they currently owe.

Under different circumstances, David Chaplin-Loebell wouldn't have minded that American Express cut his unlimited credit line to just $5,000. Except that when AmEx reduced his line in October, he had an outstanding balance of $10,000. "I found out by having a business purchase declined," he says. Repeated calls to AmEx failed to yield an answer about why the cut was made. Chaplin-Loebell, who lives in Philadelphia, is now paying the balance under his regular card terms, and presumes the line will free up for new purchases once he's below the limit. "For now, they've essentially frozen the account," he says, leaving him to juggle business expenses on his personal cards. American Express did not respond to requests for comment.

Nasty as it may be, the practice of cutting credit lines below the balance is legal -- at least, for now, says Chi Chi Wu, a staff attorney for the National Consumer Law Center, a consumer advocacy group. Federal Reserve rules requiring lenders to give cardholders 45 days notice before reducing a credit line to the point that it would trigger penalties won't go into effect until July 2010. "[Until] then, there are no federal protections," says Wu.

Congress is also hoping to rein in unscrupulous credit-card practices. In February, Sen. Chris Dodd (D., Conn.), chairman of the U.S. Senate Committee on Banking, Housing and Urban Affairs, reintroduced the Credit CARD Act, which among other things, offers cardholder protections like the ability to pay under the existing terms if an account is closed and requiring issuers to lower penalty rates within six months once a cardholder gets back on track with payments. Earlier this month, the House Committee on Financial Services chairman Barney Frank, announced a series of four hearings that will include discussions about credit card reform.

SmartMoney.com contacted both committees to see if they were aware of issuers' practice of cutting credit lines below balances, and if they planned to address it in upcoming hearings. Neither responded to requests for comment.

The motivation among issuers to make such deep cuts that they plunge below a cardholder's balance amount isn't very clear. Usually, issuers cut credit lines to reduce outstanding liabilities -- they sometimes may even chase the balance on riskier accounts with further limit cuts as cardholders pay down debts, explains Bill Carcache, an analyst with investment bank Fox-Pitt Kelton. But cutting below the balance doesn't reduce an issuer's liability: The cardholder still owes the outstanding debt.

One possibility is that this is yet another attempt by card issuers to get consumers to close their accounts (while bringing in a little fee income in the short term), says Dennis Moroney, research director and senior analyst for consulting firm Tower Group. "I can't rationalize in my mind what other motivation there would be," he says.

Paul Pensabene of Saratoga Springs, N.Y., received a statement from HSBC on Dec. 8 that said he had a $359.99 balance and remaining available credit of $8,640. But when he went online to pay the bill several days later, his online account showed that same balance put him over his newly-reduced credit line of $300. And that didn't include the $35 over-limit fee. Pensabene grappled with customer service until they agreed to remove the fee, and then paid the balance in full. "All I could think was, 'Good lord, what if this is happening to someone that couldn't pay their balance off in one shot?'" he says. "They'd end up in default with these fees piling up."

more at http://finance.yahoo.com/banking-bud...thout-Spending

[MRock]

I posted about this back in December '08 ... I don't think anyone took me seriously ... or maybe everyone thought it was just an isolated case with my card. I said then and I'll say again, the banks are making things even worse by reducing everyones short term credit.

[Toby]

Banks are between a rock and a hard place. They have to reduce their obligation (amount of credit they've extended, used or not)

Some of them aren't being very consumer friendly in how they're dealing with that problem.

[tony404]

this is going to be a real catch 22. they are cutting back on open credit of people that pay their bills. so then they have less open credit so their credit to debit ratio starts to go in to the toilet and it hurts their credit score. Which then effects their ability to get credit.

[Hell Puppy]

So far only thing I've personally seen is a couple of long dormant cards cancelled due to non-use (we're talking haven't been used in at least 3 years, maybe longer). That makes sense to me as you reduce your exposure in the overall portfolio and get rid of an account that is making no money other than Amex I wont have a credit card that has a yearly fee.

I still have enormous lines of credit and available credit on my cards. But then I have 20 years of solid credit history, a house that's nearly paid for, strong credit rating, and I pay my bills and generally use credit correctly.

What you're seeing is the banks are now doing what they should've done all along. Before the pop there was so much money on the market that people were looking to put it in play and make those good returns and they were barely even checking peoples credit or ability to pay.

Now we're slowly adjusting back to where we should be.

[miz_wright]

MRock, I actually knew where you were with that - one of the problems I've been experiencing is the massive rate hikes on my cards that is making the minimums unmanageable. It's almost as though they are actively trying to AVOID being paid. When I called to discuss with them a work-around, I was treated as though I were attempting to welsh on my obligations and defraud them - and I was calling to PAY them!

[miz_wright]

Originally Posted by Hell Puppy

I still have enormous lines of credit and available credit on my cards. But then I have 20 years of solid credit history, a house that's nearly paid for, strong credit rating, and I pay my bills and generally use credit correctly.
.

I've always had an excellent credit rating, kept my revolving credit in line with my income, and also own a house. That hasn't stopped my rates and limits from being massively affected by this, to the point where I am almost unable to pay the few cards I still have balances on because my rates have gone up so drastically (in some cases 20+ percentage points) and the limits slashed below the balances I haven't added to in a year.

[tony404]

Originally Posted by LizAEBN

I've always had an excellent credit rating, kept my revolving credit in line with my income, and also own a house. That hasn't stopped my rates and limits from being massively affected by this, to the point where I am almost unable to pay the few cards I still have balances on because my rates have gone up so drastically (in some cases 20+ percentage points) and the limits slashed below the balances I haven't added to in a year.

i would call your senator and congress man and let them know.chances are they are taking gov money.

[Hell Puppy]

Originally Posted by LizAEBN

I've always had an excellent credit rating, kept my revolving credit in line with my income, and also own a house. That hasn't stopped my rates and limits from being massively affected by this, to the point where I am almost unable to pay the few cards I still have balances on because my rates have gone up so drastically (in some cases 20+ percentage points) and the limits slashed below the balances I haven't added to in a year.

You need a bail out!

Nah, seriously, that smells like they're trying to milk those with existing balances but a good payment history.

Annoying as hell because those of us who pay our bills are catching the fall out from those who either do not or over extended themselves.

As I said, I've always paid my mortgage, house is almost paid off, and I've always lived well within my means instead of scaling my lifestyle up with my income. Dont I feel like a fucking idiot now....I could've had a bail out!!!!

[miz_wright]

Originally Posted by Hell Puppy

As I said, I've always paid my mortgage, house is almost paid off, and I've always lived well within my means instead of scaling my lifestyle up with my income. Dont I feel like a fucking idiot now....I could've had a bail out!!!!

I do feel, to a certain extent, that those of us who've made efforts to be responsible without money and income are being penalised in the current climate.

[TheEnforcer]

Many in the credit card industry basically are legal loan sharking thieves. There are illegal loan sharks that are more honest and have better business practices than some card companies.

[tony404]

Originally Posted by Hell Puppy

You need a bail out!

Nah, seriously, that smells like they're trying to milk those with existing balances but a good payment history.

Annoying as hell because those of us who pay our bills are catching the fall out from those who either do not or over extended themselves.

As I said, I've always paid my mortgage, house is almost paid off, and I've always lived well within my means instead of scaling my lifestyle up with my income. Dont I feel like a fucking idiot now....I could've had a bail out!!!!

I dont think its those who dont pay their bills that causing them to piss on those who pay. The thing is they have about year before the new rules go into effect. like they cant do cute things like give you a rate of 5% once you got a nice large balance. They raise it to 24% on the outstanding balance. The new rule says you can change any rate but not on the outstanding balance. And a few other rules that wont let them fuck people as hard. They are preparing for that.

[EmporerEJ]

It's more about available money to lend, open, non-performing credit lines, etc.
Open inactive accounts reduces their borrowing power.

Amex is evil on this...they will NOT free your line up. They will continue to reduce your line as you pay it off. They are also paying people "bonuses" to close their accounts.

The credit card companies are pure evil.

[sarettah]

I have had one dormant account closed on me and one active account closed on me. The active account was one where they shut down the entire program that the card was from (or at least that's what the letter said). I also saw one limit reduced substantially but nothing that caused any charges.

I used to play close to the line on my credit but had really gotten myself into a good position prior to last September when they started yelling the sky is falling.

When they announced that we were gonna be back to the great depression all of our Jewelry sales stopped dead. It started to come back slowly in October and November but our 4th quarter sales were dismal.

Because of that, at a time when we should have been putting money away we started having to pull it out to keep the company afloat. Managed to keep everything up to date thus far but it is, at this point, day to day.

Bottom line is we have started having to hit the credit lines pretty hard as of late because we have a bunch more going out than coming in.

Trying to come up with new ways to get more coming in at this point is a definite challenge

Anybody want to buy some Jewelry ? I give you good deal.