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Credit Cards Lowering Balances
Credit Card Companies Lowering Available Balances
Twice in a single day we got the same question:
Why did my credit card lower my balance? My score is good!
Two cardholders, opposite ends if the country, two different cards, one a large bank, and one a charge card. Both with available balances around $22,000.
Before the account review.
Both did indeed have good to excellent scores.
They both used their cards occasionally, they were just there for convenience primarily.
They both paid their balance in full monthly.
They are both self employed.
The lenders looked at total available revolving balances, on both open and closed accounts. Yes, they factored closed accounts as available balance.
The card companies reviewed their accounts, and cut the available balance roughly in half, in the first cut. One had had a pair of cuts, and this was the second.
WHY?
Lenders are getting nervous, and trying to cut their potential losses. They are thinking that you might max out your cards and default on them.. they are trying to predict the future.
Your first reaction is to close the account, as well as any others you may have with the same lender. From an emotional standpoint, that makes sense.
From a credit score perspective however, don't do it! Every account, revolving especially, has an impact on your credit score. Revolving accounts have two effects, the account itself, and the fact that scoring looks at total revolving debt. If this particular card is closed, and you have other cards that do have balances, your ratio of debt to available balance has increased, possibly to above the "ideal" ratio of about 20% to 30%.
The card issuer has already hurt your score with the available balance drop, canceling the card will just make it worse.
Twice in a single day we got the same question:
Why did my credit card lower my balance? My score is good!
Two cardholders, opposite ends if the country, two different cards, one a large bank, and one a charge card. Both with available balances around $22,000.
Before the account review.
Both did indeed have good to excellent scores.
They both used their cards occasionally, they were just there for convenience primarily.
They both paid their balance in full monthly.
They are both self employed.
The lenders looked at total available revolving balances, on both open and closed accounts. Yes, they factored closed accounts as available balance.
The card companies reviewed their accounts, and cut the available balance roughly in half, in the first cut. One had had a pair of cuts, and this was the second.
WHY?
Lenders are getting nervous, and trying to cut their potential losses. They are thinking that you might max out your cards and default on them.. they are trying to predict the future.
Your first reaction is to close the account, as well as any others you may have with the same lender. From an emotional standpoint, that makes sense.
From a credit score perspective however, don't do it! Every account, revolving especially, has an impact on your credit score. Revolving accounts have two effects, the account itself, and the fact that scoring looks at total revolving debt. If this particular card is closed, and you have other cards that do have balances, your ratio of debt to available balance has increased, possibly to above the "ideal" ratio of about 20% to 30%.
The card issuer has already hurt your score with the available balance drop, canceling the card will just make it worse.