The One Thing You Absolutely Positively Have To Do Today: Check Your Credit
Written By: Jaymi Naciri
Monday, June 29, 2020
Let me explain.
Last week, I got an alert that one of my credit limits had been lowered on one of my accounts. Turns out that one of my creditorsa creditor with whom I have a perfect payment history on my 0 interest promotion, to be clearhad lowered my available credit.nbsp;
I didnt skip a payment, I wasnt late, and my credit utilizationboth with this creditor and overallwas pretty good. Ive been aggressively paying off debts to improve my footing so I can refinance my mortgage and get rid of my private mortgage insurance, which is costing me about 180 a month.
This available credit lowering thing is apparently not an altogether uncommon event, and it can happen to you through no fault of your own. Yes, if you miss a payment, you may trigger a peek at your credit and a reevaluation of your terms. The reasons can vary, but most are based on the fact that the creditor suddenly views you as an increased credit risk or a high risk of defaulting on the card, said Business Insider.
But, thanks to the Coronavirus and its impact on the economy and employment numbers, creditors are feeling panicky. And you could find yourself being affected by their anxiety for doing nothing wrong.nbsp;
As financial conditions worsen for millions of Americans, credit card companies are tightening the purse strings, said CNBC.nbsp;In fact, some card issuers have already begun lowering credit limitssometimes without noticeand more are expected to follow.
Heres the problem. This kind of action by a creditor can have a negative impact on your credit score. If youre trying to boost your credit to take advantage of some of the lowest interest rates in history, this hit to your score is a big bummer.
Regardless, you need to check your credit right now. If you dont have one of those credit monitoring services that makes you aware of every little change to your report, this is especially important.
How much will this hurt you?
If a creditor has lowered your available credit, it will hurt. Youre cruising along with yournbsp;favorite credit cardnbsp;when you get a notification that your credit limits been lowered. Say what?nbsp;The above scenario happened to a friend of mine who had enjoyed the use of his credit card, made regular payments, was not over the limit, or ever late with a payment, said Business Insider. Hisnbsp;credit scorenbsp;dropped 30 points.
It isnt so much the lowered available credit that affects you, but what it does to your credit utilization. Lowering yournbsp;credit limitnbsp;can actually hurt your credit scores. The reason is that doing so increases your overall balance to limit ratio, ornbsp;utilization rate, said Experian. The lower your utilization rate, the less risk you represent to lenders. An increase in your utilization rate is a sign of risk because analysis has shown that consumers with high utilization are often using credit to spend more than they make and are more likely to default if they take on even more debt.
Will you recoversure. Will you recover in time to refinance while rates are below 3? Maybe not.
Do you have recourse?
Not really. You can call your creditor for an explanation and to ask if theyll return the limit to where it was, but dont be surprised to hear, No. Also, while this practice can feel punitive, itsunfortunatelyperfectly legal.nbsp;
We knew the purge was going to come at some point, but it looks like it may have started, Matt Schulz, chief credit analyst at LendingTree, told CNBC. With most major changes to your credit card terms, issuers need to give advanced notice, but thats not the case with credit limits, Schulz said. For the most part, they are free to change those credit limits as they please.
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