What a change…Credit Card Limit Reductions?

RISMEDIA, September 1, 2009-Ray Robinson thought he had a really good credit score, but then he applied for an auto loan and the panic set in. His once very good 758 score had dropped to 692. The most widely used credit scores run from 300 (very poor) to 850 (immaculate). First, Robinson rushed to assess what triggered the change- he pays his home loan on time, all the credit cards and the other auto loan are kept up to date too. He wasn’t using his credit cards more than usual, so what happened?

Well, the economy continues to take its toll in more ways than one. As banks and lenders continue their ongoing effort to stabilize their portfolio risk they are closing a record number of credit card accounts (over 50 million were announced last week alone) and reducing millions of dollars in credit lines. This pull back reflects an unprecedented amount of credit-up to $2 trillion on cards alone by 2010.

As the credit lines tighten up, even some consumers with excellent credit and spotless payment records are seeing their credit scores reduced because of the diminished credit lines. Yes, our friend Ray with the once 758 score hasn’t changed the way he manages his credit or makes purchases but the credit limits he once had to support those purchases have changed. By dropping his credit limits it would “appear” that he is using a higher percentage of what credit he has available. He might even incur a “over limit fee.” Credit card providers collect around $15 billion in penalty fees each year.

So what does a few points on your credit score really matter? It’s always mattered a lot. Almost all banks, home lenders, credit card providers and even insurance companies now use your credit score to decide how risky you are for their products. If you have anything less than a 730 – 750 credit score, you typically will pay varying degrees more in the way of higher fees and interest rates. How much more? In a recent survey at bankrate.com, a consumer with the best credit could get a credit card interest rate below 8% (not including promotional/teaser rates) while those with the worst credit could see rates over 23%. It’s estimated that the typical household could pay as much as $300,000 in extra interest over a lifetime based on situations like this. This is just one of many examples that are changing the landscape of consumer credit management.

So what do you do about it? Experts will tell you to review your credit report at least once every 90 days or so and watch for any changes in your profile. But just watching and waiting is not enough. The need to proactively manage your credit profile to assure you are aware and prepared for situations like Ray’s has never been greater. Additionally, having direct access to a trusted advisor who can address all your questions about your credit report as well as provide you guidance on building a plan to more effectively manage your credit and debt profiles is of the upmost importance. Let’s face it, if you are Ray and you just realized what has happened to your credit scores, you may end up either paying a higher interest rate or not being approved for your car loan if you haven’t taken the proper steps to reduce this risk.

About Suzanne O'Brien

The role of a real estate agent is to guide you through the buying and/or selling process and take the time to make sure you understand every step of the transaction. I am absolutely committed to fulfilling your needs with the highest level of professionalism, expertise and service. My commitment to listening and satisfying your needs are the foundation from which a solid business relationship is built. I realize that people do business with people they trust. I am interested in what is best for you, the client, and am committed to establishing a long-term relationship based on trust. In addition, real estate is often times very personal, about family and home and pride myself in developing relationships that now call clients my friends. I pride myself on being knowledgeable and staying current with the fast pace changes in the industry. I approach each clients’ needs individually and am constantly aware of current and upcoming inventory. My creative approach to the business has earned me wonderful associations with both clients and other real estate professionals. I am always working for you…I feel the responsibility to make your dreams a reality…one move at a time.
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