AmEx and Other Cards Dropping Limits And Hurting Credt Scores

American Express, Chase, Citibank, and other credit card companies are dropping credit limits which could in itself lower your credit score.

American Express, Chase, Citibank, and other credit card companies are dropping credit limits which could in itself lower your credit score.  How does that work?  If you have a balance on your credit card and the limit is suddenly dropped, your loan to limit ratio increases.  The ratio measures the amount of your credit limit you are using.  Credit rating agencies use that ratio to help determine your credit rating.

Even if you have had stellar credit and paid your bills on time, you could see your credit score decline if your limit is suddenly cut.

What can you do in this case?  The best thing to do is to lower the balance you are carrying on the card by paying of debt or moving the balance to another lower interest card.  But don't cancel your card out of anger.  Cancelling a card, even one with a lower balance can also impact your credit score.  Remember, the credit rating agencies use the ratio of total debt to your credit limit as one factor in setting scores.  If your total limit declinces because you cancelled a card, that will lower the score.

These moves will only serve to reinfoce the growth in savings as consumers reject credit and rebuilt their personal balance sheets.  It's no wonder the US Savings rate hit a 14-month high of 5% last month.  The banks don't seem to want to make it easy to spend and consumers are wisely taking the cue and saving.  The loser in all of this are the retailers, car companies, consumer electronics companies, etc. that are seeing spending slow. 

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