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Card reform won’t stop credit limit squeezes

Jul 13, 2009 | | Comments Comments Off

Dear Liz: I am a business manager and in the last month, three of my clients have received letters from major banks reducing their credit card limits to about $250 above their current balances.

None have ever been late on a payment and all pay well over the minimum each month. Also, none of them were using more than 40% of their previous credit limits. Now they will be shown as using more than 90% of their new credit limits, which will affect their credit scores.

This is patently unfair. Credit card companies should not be allowed to reduce credit limits on good paying clients. Do you agree?

Answer: The credit card reform law that goes into effect next year restricts many card issuer practices, but the practice of reducing credit limits isn’t one of them.

Soaring default rates and the credit crunch have led card issuers to reduce their risk exposure on all fronts. Unfortunately, that means even good customers are feeling the squeeze.

If your clients have good credit scores, they can apply for new accounts with other lenders. People with FICO credit scores of 740 and above are still in great demand. If your clients’ scores are lower, they may have to put up with the lower limits, but they should pay down their balances to free up more of their credit and reduce the damage to their scores.

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