CHESSNOID

Sooner or later, one of your credit card companies will lower your credit limit or cancel your credit card altogether.  Why, you may ask when you made no late payments or have been on time forever?  Simply we are in a bad economy and credit card companies like American Express, Visa, Mastercard, and Discover are reducing their risks by reducing the amount of credit that can be defaulted on.

It may be hard not to take it personally, but the credit card companies are doing it for their bottom line.  They do not care about their loyal customers more than their bottom line.  So what are the implications?  Will the credit card limit reductions or cancellations hurt your FICO score.  The answer is yes. Plan and expect your FICO credit score to fall.

March 3 (Bloomberg) —

Wayne Brown has a dilemma. If he reduces his credit-card balance, American Express Co. will cut his credit limit to the amount of the new balance, he said. If he doesn’t make a big payment, his interest rate may skyrocket.

The credit limits on Brown’s cards have been lowered, which has raised his debt relative to his available credit. This so- called utilization rate is a key factor in determining credit scores. Brown, a 58-year-old construction company owner in San Diego, has seen his credit score drop to 650 from 760 over the past 13 months.

I know from personal experience it will hurt your FICO score.  Don’t believe any other sites or “financial experts” claims that it won’t.  If you have easy access to your credit scores, then you can compare it before and after.  I can guarantee you adverse credit actions against you will NOT raise your score.  Quite honestly though, credit is so tight out there that getting credit is very difficult right now.  Banks and credit card companies are and will continue to lose money so they will have even more difficult time extending future credit.

About 45 percent of U.S. banks reduced credit limits for new or existing credit-card customers in the fourth quarter of 2008, according to a Federal Reserve January survey of senior loan officers. Financial institutions may slash $2 trillion in credit- card lines in the next 18 months, Meredith Whitney, a former Oppenheimer & Co. analyst, wrote in a Nov. 30 report.

“You’re no longer immune if you have good credit,” said Curtis Arnold, the founder of CardRatings.com, a Web site that reviews credit cards. “The issuers hold the cards, literally.”

Credit-card issuers such as New York-based American Express, Citigroup Inc. and JPMorgan Chase & Co. have cut credit limits to guard against risk and prevent delinquency and charge- off rates from increasing, said Arnold, who is based in Little Rock, Arkansas. Charge-offs are loans the banks don’t expect to be repaid and were 7.1 percent on average in January compared with 4.6 percent a year earlier, according to data compiled by Bloomberg.