Avoiding Credit Cutbacks

Some credit card issuers are cutting back credit lines or cancelling unused cards altogether. Kelli Grant, Sr. Consumer Reporter for SmartMoney.com, has some has some advice to avoid taking a credit hit.

In addition to looking at your credit score, credit card issuers are now looking at your spending habits as well. "They're looking at what you buy, and where you buy it," says Grant. "They're not telling you exactly what is risky behavior, so there's not really a great defense on this except to be a great consumer otherwise." That means paying your bills on time and keeping your balances low. Now is not the time to run out and buy all those luxury goods you've had your eye on. Keep your spending habits in check and your credit issuer is less likely to lower your credit line.

Many credit issuers are also jacking up interest rates. Legally, credit card companies can do this whenever they feel like it. Citibank just increased their interest rates by an average of 3% for many of its cardholders.

Another problem facing consumers is a loss of credit. Some companies are lowering their credit lines or cancelling unused cards altogether. "That is a huge problem for consumers," says Grant. "That is going to hurt your [credit] score because you have less available credit." Some companies are cutting limits in half; others are reducing them gradually as you pay off the balance.

Grant suggests keeping an eye on your card limits. Check them once a month to be sure they're still intact. If you plan to do a lot of shopping on one particular card, call the company and ask them to reinstate your original limit. If you are a good customer and pay on time, companies are more likely to take a risk on you.

Companies are also offering fewer rewards as incentives. Some companies are increasing the amount of points or dollars you need to procure before they'll give you your reward.

Despite all the setbacks, though, companies do want your business. An unstable credit environment leaves more bargaining power in the hands of the consumer. "If you have any of these problems with fees... they've reduced your credit limit, raised your rate, or even if you're having problems paying, talk to your issuer," says Grant. "They may be able to work something out." The last thing a credit issuer wants is to lose your business to another company. They may be willing to work with you, even if it means giving you your original credit limit and interest rate back.

For more information on credit, as well as additional personal financial advice, click here to visit www.SmartMoney.com.

By Erin Petrun
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