We hear from many people who are experiencing reduced credit limits on their credit accounts, even though they have been good, long-standing customers with a stellar payment history.  This will likely continue as the financial industry and the credit card companies look for ways to reduce their risk for loss.

Some people are receiving notification that their credit card account is being close due to inactivity.  This happens if the account has not been used in a while; the credit card company might decide to close it rather than risk the customer using all of the available credit and then being unable to repay it.

WHAT TO DO
Use your credit accounts as credit building tools.  Keep your revolving accounts: major credit cards, retail store and gasoline accounts, active by using them once every three months, IF they do not currently have a balance on them.

NOTE: This does not mean that you should go out and charge big ticket items and use up your credit card limit.

HOW TO DO IT
Use your card for a small purchase of something you were going to buy anyway, perhaps a tank of gas or a pair of pants.  When the credit card bill comes the following month, pay it in full early, before the due date.  This should keep it reported as active and open on your credit reports where it will be included in your Utilization Ratio.  BONUS: You won’t pay any finance charges or interest fees by paying the account in full before the due date.

MAKE A DATE

Mark your calendar or planner to schedule regular use of the cards as CREDIT BUILDING TOOLS.  Remember, this strategy is only to help grow your scores, NOT to increase your credit card debt.  By keeping your credit accounts active, they remain open on your credit file, helping your credit scores grow.

You can get more details on this and other credit building strategies, specifically tailored to your accounts, with your Credit Check Up.

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A significant part of that is using existing credit cards and retail accounts as credit building tools.  However, as the financial industry’s challenges continue, consumers are being hit rather hard by abrupt closings of long-time accounts in good standing, extreme interest rate changes, and reduced credit limits as they pay down their debt to help their own financial situation.

ANNUAL FEE
Now there is something else to watch for – Annual Fees.  Some cards without an annual fee are now adding one on.  Some cards that already had the annual fee are increasing the amount.  Read your statements every month, including that tiny, fine print where they might put the Notice of Changes to Your Account Terms.  If you are suddenly hit with extra charges on your credit card, contact the customer service department and ask for an exemption or waiver.  They may still value your business enough to do it.  And if they agree to reverse the fee, get it in writing.

REWARDS PROGRAMS
If any of your credit cards have rewards programs, it might be a good idea to cash them in.  As financial institutions look for ways to save money and cut back on expenses, they may makes changes to, or discontinue, these perks, particularly with the new law, The Credit Card Accountability, Responsibility and Disclosure Act of 2009, taking effect next year.

KEEP THEM OPEN
For credit cards to be effective as credit building tools, they must be open and reported on your credit file.  Check your own reports regularly to be sure all three credit bureaus have your complete account information.  If not, contact the credit card company to request they report to all three bureaus. 

Use your credit cards, retail store accounts, and gasoline cards once every four months for a small purchase of something you were going to buy anyway.  This could be a pair of socks, a tank of gas, or school supplies.  Then pay off the bill in full as soon as it arrives, lock up the credit card in your desk, and mark your calendar or planner to use it again in another four months.  This will keep your account open, active, and included in your credit score, while saving you money by NOT carrying a balance on the account and paying interest.

In these trying times, it is extremely important that consumers do everything they can to protect themselves and their financial future.  Learn about your credit, subscribe to our RSS feed for instant updates on new articles, become credit-wise.  For your Personal Credit Building Plan with effective strategies and information on building your credit, contact us today.

To give yourself every financial option you can, building your credit rating and getting better credit scores should be part of your Personal Financial Fitness plan.  Just like paying the bills on time and following your budget, having a Credit Building Plan in place, and using it, should be part of your routine. 

WHAT TO DO
1) Pay all bills on time.  Don’t be late on anything.  This is the number one factor in credit scores.  If you do miss a payment’s due date, contact the lender immediately to find out if it has been reported to the credit bureaus.  Typically, payments that are less than 30 days late are not reported. 

2) Keep credit card balances under 50% of the credit limit.  Having your account balances over half of the available credit usually causes credit scores to go down.  This includes your gasoline cards and retail store accounts, too.

3) Keep revolving accounts open and active.  Don’t close your credit cards when they are paid off.  They help several parts of your credit scores and they do this best when they have zero or very little balance and are used a few times a year to keep them reported as active accounts.  Use your planner to schedule a fill up with that fuel card you rarely use or that Sears account you’ve had for years.  Pay the entire bill as soon as it arrives; you’ll save money on interest fees and help your credit scores grow.

4) Keep your credit cards at home in a safe, locked place.  Don’t carry all of them with you all the time.  You rarely need to use them all in one day anyway and it may help to reduce the temptation to overspend.  Additionally, having fewer items in your wallet means less opportunities for identity thieves in the event your wallet is lost or stolen.

5) Limit the number of times you apply for credit.  The scoring formula takes into account how often you are “shopping” for credit; too many inquiries can trigger a drop in scores.  Rate shopping for mortgages or auto loans should be done within a two-week period to minimize the effect on credit scores.

6) Monitor your credit regularly.  Checking for errors at least three times per year is a great way to be sure your credit report is accurate and contains only YOUR information.  The rise in identity theft and the continued rate of credit reporting errors means you must take an active role in maintaining your good credit rating.  You can do this for free with your Annual Credit Reports.  Dispute any errors with all three credit bureaus, even if you only found the error on one report.  Keep copies of everything.

7) Bookmark our website and subscribe to the link on the right to stay updated on credit building information.  You can also get personal credit consulting services designed to optimize all five parts of your credit score based on the accounts you currently have.  Contact us today for more info.

Your credit card limits play an important part in your FICO credit score.  Understanding how it works can help you get, and keep, a higher credit score. 

Credit card companies, along with most financial institutions, are looking for ways to reduce the risk to their bottom line.  And lowering credit card account limits means there is less of a chance of a consumer racking up huge amounts of unsecured debt and not paying it off.  Not just consumers with a spotty credit history, but consumers across the board.                      

WHAT IT DOES
The second largest part of your FICO score is the debt-to-available-credit ratio, also called the Utilization Ratio.  If you have a $4000 limit on your credit card and you carry a balance of $1000, your ratio is 25%. 
Generally, balances over 50% or half of the credit limit have a negative impact on your scores.  Keeping the balances under 30% usually helps your scores.
NOTE: You can check your own FICO scores here.  Checking your own reports and scores does not count against you.

If your credit card company decides to cut your credit limit from $4000 to $2000, and you still have the $1000 balance on the account, your utilization ratio just jumped up to 50%.  This can have a detrimental effect on your credit rating, especially if it happens to two or three of your accounts with balances on them. 

Additionally, if the credit limit is cut to your current balance, down to $1000 from $4000 in our example, you could inadvertantly go over your credit limit with just one use.  This could cause you to end up with over-limit fees and higher interest rates.  Yes, this is really happening to consumers.

WHAT TO DO
As stated in the previous post, READ EVERYTHING.  Take time to look over all of your credit card statements and correspondence to notice any changes to your account.

If you incur over-limit fees, call the Customer Service number for the account.  Request that the fee be cancelled and reversed.  Site your long history as a good customer with them.  Be prepared to go up the chain of command a few times to get to the person that can actually make the decision to reverse the charges.  And then, get it in writing.  Request written confirmation via email or fax that the charges are taken off and that you will not be charged any more, providing you do not continue to use the card while it has that same balance.  Also, keep written notes yourself of the date and time along with who you spoke with.

You may want to request that the limit be raised back up, although they might not do so without treating it like a new application, which can result in a Hard Inquiry on your credit.

For your personal Credit Check Up with information specific to your own accounts, contact us today.

CREDIT CARD STATEMENTS
Look at your credit card statements every month to be sure all of the activity on the account is yours.  Unknown charges could be an indicator of fraudulent use and/or identity theft. 
- By contacting the credit card company to report fraudulent charges immediately, you should not be responsible for paying any of those charges.
- By catching identity theft early, you will minimize the amount of time and money spent trying to correct it later.  The chance of a fraudulent account going unpaid and to a collection agency is also reduced.  Collection accounts, whether legitimate or not, are a derogatory item against your score while they are listed on your credit reports.      
Errors do occur
- If there is a duplicate charge for the same item, it raises your account balance which makes your payment higher and also affects the second largest part of your credit score, the balance-to-credit-limit. 
- If your payment is not listed on the correct date, you may receive a late fee and it possibly could end up as a late payment on your credit report, negatively affecting the largest part of your score, your Payment History.
- If you were charged a fee in error, contact the company right away.  Request written confirmation of the correction and be sure to write down the date, time and name of the person you spoke with.

Changes to your account
Some credit card companies are raising interest rates, even on customers with a good payment history. 
- Contact your company and request a lower rate; emphasize your loyalty and timely payments.  You may have to talk to several people before getting to the one that can make a decision.  Keep a written record of the conversation and when they agree to a lower rate, request it in writing.

Some of these companies are lowering credit limits on long-standing accounts, often with no prior notice.
- A lower limit on an account with an existing balance can drastically change your balance-to-credit-limit, impacting your credit scores.

BANK STATEMENTS
Banks are among the many companies raising fees to increase their bottom line.  Check your statement to be sure you are not being charged for fees that you shouldn’t have.  A recent article in the Wall Street Journal highlighted the $25 monthly fee that was being charged on the “free” checking account.
- Contact your bank immediately to request the fees be removed and the charges reversed.  As always, get it in writing to protect yourself.
- Ask for an account review to be certain that you are receiving the best services available for your type of account usage.

BILLING STATEMENTS
Solicitations for products and services often look like legitimate bills that arrive in the mail.  And these companies are counting on most people being too busy to read all the fine print on the statement or too worried about having an unpaid bill to check into it further. 
- Don’t just pay a bill if you do not recognize it immediately.  Take the time to investigate the statement before sending a check.

This applies to business owners, too.  The Arizona Republic reports on a scam that is targeting businesses by sending a notice that corporations need to file their “Annual Minutes Disclosure Statement” along with a bill for $125.  None of this is legit, although it looks and sounds real.  And people send in their money thinking they need to do so to stay in compliance.
- Always read your billing statements, especially if you are a business owner.  Take the time to contact the actual government agency if you receive something you are not sure about; or contact the Better Business Bureau for verification.

You can grow and protect your good credit by following a Personal Financial Fitness Plan.  We can provide detailed information to help your credit rating with your Credit Analysis.  And keep reading those statements.

BACKGROUND INFORMATION
The second largest factor in credit scores is the utilization ratio, your balance-to-credit-limit amounts.  Theoretically, having zero balance should really help that ratio. 

In reality, the credit card company has to process your payment once they receive it.  Then, the next time they transmit updated customer account information to the credit bureaus, your payment and zero balance will be included.  BUT, if the credit card company only sends customer info to the bureaus once a month and it happens the week before your payment is due, the zero balance may never show.                              

Your account will still report “current” or “in good standing”, which helps your credit score under Payment History.   The downside is that, on your credit report, it could look like that credit card is carrying a balance. 

If you regularly use a significant amount of the credit limit each month, it could be reflected with a high utilization ratio.  When credit card balances are OVER 50% of the credit limit, credit scores usually go down.

WHY IT MATTERS
When you apply for a loan or credit account, the potential lender checks your credit report and score.  If their lending guidelines require a certain credit score, and your score is 20-50 points lower than it should be due to the credit card showing a balance, creating a high utilization ratio on paper, you may be turned down for the loan or account.

WHAT TO DO
If you are planning a major purchase in the near future and heavily use your credit cards throughout the month - paying them off completely when the bill is due – you might want to consider changing your habit for a few months.  By limiting the credit card usage for two months before your loan application, you give the reporting process time to accurately reflect your true credit card account balances.  We have seen scores increase by more than 50 points just by having the utilization ratio under 30%.  So pay cash or distribute the card usage among a few different accounts for the month or two prior to your major lending purchase.

For more specific information on your accounts and how you can use them to optimize your credit score, contact us today for your Credit Analysis.

Remember, the second largest part of the FICO credit score is the Amounts Owed; this accounts for 30% of your scores.  With the continued uncertainties in today’s economic climate, many credit card companies are lowering the limit on their customers’ accounts.  Typically, this is a precautionary measure that financial companies are taking to reduce the risk to their bottom line.

Suddenly, that $10,000 Visa that you’ve had for 12 years now has a $5000 credit limit, effectively cutting your available credit in half.  If your balance was $4000 on the Visa, your ratio Utilization Ratio (Amounts Owed) just went from 40% to 80%.  And your credit rating will most likely be headed down.

WHAT TO DO
1)  Keep credit card balances under 50% of the credit limit.  The closer your account is to being “maxed out” or fully utilized, the more detrimental the impact on your scores.                                 

2)  Check your statements every month.  Make sure the credit limit hasn’t changed; often this is the only place you’ll find out as most companies do not send a letter to notify you the way they do when they decide to raise your limit.  Monitoring your statements all the time is also a good idea to be sure there are no duplicate or unknown charges on your account or no surprise changes on your interest rate.

3)  If your account limit is lowered, take the time to write to the company to find out why.  Explain that you are a customer in good standing for ___# of years, that you always pay your bill on time and do not understand why they took this action.  You may want to tell them you are okay with the limit being raised, just be sure NOT to request a credit increase or it may be treated like a new application where they check your credit, which can result in an Inquiry and count against your scores.

If you are ready to improve your Financial Fitness, contact us today for your complete Credit Analysis.  You can take control of your credit instead of feeling like it is controlling you.