Credit Card Debt Management

If your credit card accounts are among those being affected by credit limit cutbacks, it may be affecting your FICO score by narrowing your debt-to-credit limit ratio. Creditors typically like to see this ratio at 30% or less, but if your $20,000 credit limit just got halved on a card with a $5,000 balance, your ratio just went from 25% to 50%. It can pose a problem, depending on how high your credit card balance is, but there are some steps you can take that may rectify the issue.

Call and ask. Your credit card issuer may be willing to reinstate your previous credit limit. Chances are good your credit limit reduction was the result of some arbitrary computerized decision, and a real human being may be more sympathetic if you explain your situation. If necessary, ask to speak to a supervisor who may have more bargaining power. The biggest mistake you can make is to simply take your lumps and never ask for mercy, if you really need it.

Transfer your balance. You can open a new credit card, although this will not necessarily be the best thing for your FICO score, which takes into consideration the age of all your credit accounts. You might also shift the balance from one of your existing credit card accounts onto another of your existing credit card accounts where the credit limit is higher. For instance, your card had a $4,000 limit that got sliced to only $2,000. As a result, your $1,000 balance suddenly looks much higher in relation to the limit. If you had another credit card with, say, a $5,000 limit and zero balance, the $1,000 balance would fit much better there. It will probably result in a balance transfer fee and the interest might be higher on the second card, although you might be able to call the $5,000-limit card issuer and negotiate that interest rate. Just tell them you’re considering closing the account, but the interest rate is awfully high for your liking. You may be surprised what could result. Keep in mind that negative consequences are possible from too much balance shifting. You could see an interest rate hike or even a credit limit reduction on your other credit cards.