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Many of credit card holders are starting to see that credit card companies are reducing credit lines on credit cards but why? Even though people are paying their bills on time they are watching credit line reductions without having a way to do anything about it. As a personal financial consultant I have been asked a few questions by clients that I think you might want answered as well. Here they are:

Q: Why are the credit card companies doing this to me?
A: Well first off, you are not the only victem in this process. credit card companies all over are doing this to many card holders. The reason although it seems to be unfair is actually pretty simple to grasp. In early 2009, Caroly Maloony along with other major aspects of the United States Government started what is now known as the credit card reform. This reform started with a simple act called the cardholder bill of rights and has grown through many acts and legislations since. Banks argue that the new credit card reform rules and regulations will not only cut into their profits but have an effect on their ability to “price for risk”. Obviously loaning money wether for credit cards or any other kind of loan carries a risk to the lenders. Due to some of the rules these risks are harder to take unfortunately this is what is leading credit card companies to reduce credit lines even if you are the perfect client.

Q: Will a credit line reduction effect my overall credit score?
A: This is another unfortunate thing. Although I don’t like to be the bearer of bad news, I feel that it is vitally important that you fully understand what is going to happen. The short answer is YES THIS WILL HURT YOUR CREDIT SCORE! But, I want to explain to you why. Even though there is no one that can truely tell you the secret as to how credit scores are calculated, there are a few pieces of the puzzle that are pretty much public knowledge. One of these pieces is all about credit limits. It goes something like this, your credit is effected (although I can’t tell you what percent of your credit score this may effect) by credit lines in this way – It is something called your debt to credit ratio. Many credit analysts including myself say it is best to keep this ratio at 50% or less. This means that if you have a credit line of $10,000.00 on one of your credit cards, you want to make sure not to carry a balance of no more than $5,000.00 on that particular account. Here is where the problem comes in for most people lets say you have a $10,000.00 credit line today and you have a balance of $4,500.00 well, you are doing what is best to keep your credit score in tact on that card. Lets say tomorrow the lender decides to reduce your credit line to $5,000.00 and unfortunately you do not have the funds to pay the balance down to $2,500.00 or less. Well at this point this is going to effect your debt to credit ratio and eventually your credit score.

Q: Is there anything that I can do to stop this from happening or repair the damage?
A: As far as stopping the process, unfortunately this process can not be slowed, halted, or stopped in any way. This is something that the lenders are doing no matter who you are or how you pay toward your account. On the other hand, there are ways to start fixing the damage once it has been done. Even if you cannot pay off your balance or the portion of your balance that needs to be paid off to fix the issue, you might still qualify for a balance transfer credit card. You can use a balance transfer card to pay off the portion of the balance that you cannot afford to pay off cash. Doing this may prove to be a great move as far as your credit score is considered. When looking for good balance transfer opportunities I always advise Discover credit cards because of their excellent customer service and the fact that they are not participating in most of the aspects that are harming consumer credit scores.

For more information on this topic or any other financial topic feel free to contact us:
By phone – (561) 355-0069
By email – Support@JemCreditCards.com
On the web – www.JemCreditCards.com

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Federal regulators proposed some changes to the way that credit card companies are allowed to operate and conduct their business. These bills are now creating better oversight and regulation on credit card companies but still face tough resistance from the industry. And this resistance is coming in the form of added fees and an increase in the current fees you already pay to make up for the losses that credit card companies are planning to take from these changes.

Although the changes were originally not set to take place until July 2010, Congress had rushed to pass the bill that was meant to protect consumers from unfair credit practices such as interest rate increases, and the bill was passed back in February. The Obama administration is claiming that along with these increases, predatory lending practices have contributed to the economic crisis we are facing.

In the past, it has not been uncommon for credit card issuers to increase your interest rate if you fail to make all of your payments on time. But they had only seemed to be worried about your credit standing with them and disregarded how you kept up with your other credit lines and loans. Recently though many of them had started increasing your interest rate for reasons like a sudden drop in your credit rating, or going above your available credit limit. So say you failed to make a payment with one of your credit card holders and you have three other credit cards, then all of their interest rates might increase just due to that one missed payment.

Since the so-called recession started about a year and a half ago there has been a large increase in the amount credit card delinquencies and defaults that spawned around the same time that credit card companies started dramatically increasing their interest rates. Many consumers can not continue to keep up with the higher monthly payments that these rate increases cause, making them start to fall behind on their payments which in turn, will damage their credit rating.

If you find yourself to be among the many average consumers whose credit report has been negatively affected due to credit card debt, there are many free resources available on the web that can help you to rebuild your credit rating. There is a lot of good information listed on the Federal Trade Commission’s website about any credit related issues and it is a very good place to begin. Other websites are out there as well that help you to learn how to view, monitor, and even repair your credit without costing you anything like FreeOnlineCreditGuide.com. While searching for this kind of information please be advised that there are a lot of websites and companies out there that claim to help you with your credit, but only after you sign up for their services. A simple search with the Better Business Bureau should always be done before doing business with any companies online.

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