Ask Liz Weston

Get smart with your money

Credit Cards

Q&A: How to get a higher credit limit after the card company turns you down

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Dear Liz: I asked for a credit limit increase on my Visa card from $5,000 to $20,000. I was turned down because of not enough income. I was very disappointed and wonder what if anything I can do to reverse the situation.

I am a 77-year-old retired widow who owns my home with no mortgage. My annual income is around $50,000 from Social Security and my required minimum distributions from IRAs. I have no debt. My investments and savings obviously don’t count. I was about to charge $12,000 in airline tickets and wanted to take advantage of the cash back on the credit card. I always pay my credit card bill in full every month. I feel discriminated against.

Answer: Imagine you’re a lender and one of your customers suddenly demands that you quadruple the amount you’ve agreed to lend her, with the resulting credit line equal to 40% of her income. That might give you pause.

Or perhaps not. Credit card issuers have different policies about when to grant or deny credit, and those policies can change over time as they try to manage the risks of their lending portfolios. Also, issuers may be less generous to their longtime customers than they are to the new customers they’re trying to attract.

Understanding all that can help you formulate a game plan to get what you want. One option is to call the issuer, explain your situation and ask for a temporary credit line increase so you can book those tickets.

Another (and certainly more lucrative) option would be to apply for a new credit card with a fat sign-up bonus from a different issuer. Several cash-back cards offer rewards of $150 to $200 once you spend a certain amount within the first few months, and you would meet that requirement easily with your ticket purchases.

If you’re willing to consider something other than a cash-back card, you can check out travel rewards cards that offer points or miles. Several have bonuses that can translate into $400 or more of free travel.

Applying for a new card might temporarily drop your credit scores a few points, but that shouldn’t be a concern if you’re not planning to apply for a major loan in the next few months.

Q&A: Too many cards?

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Dear Liz: My husband and I have opened accounts to take advantage of 0% interest financing for special purchases. These accounts are paid in full prior to the end of the promotional period and we don’t use them again. I’ve read to not ever close any accounts, but am nervous about having so many accounts open with such high limits. Is there potential for issuers to stop granting us credit because we have so much available? Are we at greater risk for identity theft with all of these open accounts?

Answer: People used to believe that closing accounts could somehow help their credit scores. Credit scoring companies and experts have done their best to combat that myth, but in doing so have left some people thinking that they can’t ever close unneeded accounts. That’s not true either.

Your credit scores won’t be hurt by having “too many” accounts with high limits. That’s generally a good thing, since multiple lenders have deemed you creditworthy. You get the most credit scoring benefit, though, from accounts you’re actively using.

Leaving unused accounts open can leave you more vulnerable to fraudulent account takeover. At the very least, it adds to the hassles in your life, since you have to keep an eye on all your accounts. And conceivably a lender could balk at seeing a lot of unused credit lines, even if it didn’t hurt your scores.

You don’t want to close accounts if you’re trying to improve your scores or in the market for a major loan, such as a mortgage or auto loan. Otherwise, though, you shouldn’t worry about closing an account now and then if you’re not using it.

Q&A: How to improve your FICO score

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Dear Liz: My FICO score is just under 800. The reason given that it is not higher is that I don’t have any non-mortgage leases. What would be the cheapest way to remedy this without buying something expensive?

Answer: When you get your credit scores, you may be given sometimes-vague reasons for why they’re not higher or lower. The “reason code” you saw probably said something like “no recent non-mortgage balance information.” What that means is that you haven’t been using revolving accounts such as credit cards. To get higher scores, you’d need to dust off your plastic and use it once in a while. (You don’t need to carry a balance to get or keep good scores, however. You can and should pay credit card balances in full each month.)

Any improvement in your scores is likely to be modest, however. Your numbers are already high and the factor known as “mix of credit” — which means responsibly using both revolving and installment accounts — accounts for just 10% of your FICO scores. Plus, there’s no real point in having scores over 800, other than to brag about them. Once your scores exceed 760 or so, you’re already eligible for the best rates and terms.

Q&A: What to do about heavy credit card debt

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Dear Liz: I have a lot of credit card debt and am just able to make minimum payments. I feel like after doing this for four years now that I am not getting ahead. I will be 61 this summer and don’t have much saved for retirement. My rent keeps going up along with other expenses. I have an 11-year-old car that is in need of maintenance but don’t have the funds to do it. My question is, what would happen if I walk away from the credit card debt? Will I be facing garnishment?

Answer: Yes, you could be sued and face wage garnishment if you simply stopped paying your debts.

You could consider a debt management plan offered through a credit counselor, which could lower the interest rates you pay. You can get referrals from the National Foundation for Credit Counseling at www.nfcc.org. But you’d be making payments for the next five years or so, when you could be putting that cash toward your retirement.

A Chapter 7 bankruptcy, by contrast, would take a few months and legally erase your credit card debt to give you a fresh start. Bankruptcy is often the best of bad options when you can’t make progress on your debts. Consider meeting with both a credit counselor and a bankruptcy attorney so you understand all your options.

Q&A: Frequent flier cards

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Dear Liz: I have an airline credit card but I find it really hard to use the frequent flier miles I get. The “free” flights have gotten more expensive (they take more miles) and harder to find. I’m getting sick of paying an annual fee for nothing. Would I be better off with a cash-back card?

Answer: Good cash-back rewards cards typically offer rebates of 1% to 2% on most purchases, and some have rotating categories that offer rebates of 5% to 6%. If you’re not an elite frequent flier or trying to amass miles for a special trip, then putting most of your spending on a cash-back card can make sense.

Think twice about closing that airline card, though. It likely offers some perks worth keeping, such as free checked bags and priority boarding. If you take one or two flights a year, the card may pay for itself.

Q&A: Discontinuing automatic payments after death

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Dear Liz: I use auto-pay for bills in both my business and my personal life. What can we, as consumers, do to protect ourselves and our estates from companies taking advantage of the auto-pay when we die? Do our heirs have to cancel right away? They will have so many other things to deal with in those first months after a loved one dies.

Answer: You may have read about Pia Farrenkopf, the Michigan woman whose mortgage and utility bills continued on auto payment for five years after she died. It was only after her account ran dry, the bank foreclosed on her home and a contractor was sent to fix a hole in the roof that her mummified corpse was found in a Jeep parked in her garage.

The companies receiving the payments weren’t taking advantage of her — they had no way of knowing she was dead. And not all bills will or should stop getting paid at the moment of someone’s death. Even if Farrenkopf’s death had been noticed right away, the person settling her estate likely would have kept the utilities paid and the insurance in force until the home was sold.

If you’re concerned about auto-payments continuing for too long, make sure that your executor or successor trustee has access to your bank accounts. Your bank has a power of attorney form that you can use to grant instant access, or you can provide your login credentials, either now or in the estate planning documents this person will receive at your death.