Responsible Credit Card Holders Seeing Credit Scores Drop As Credit Companies Cut Credit
As credit card companies scramble to tighten their businesses and prepare for the credit card bill which is coming early next year, credit card holders are getting hit hard. Interest rate hikes, fee hikes, new fees and more have become the norm for the credit card industry nowadays. As a result, credit card holders are finding it harder and harder to keep their credit cards and many have protested against these financially crippling changes. Unfortunately, credit card companies are not listening.
Among the many unfair changes that credit card companies are implementing, one of the worst would have to be credit cuts. Millions of credit card holders have had their available credit cut recently. What is even worse is that many of these credit card holders were those who have struggled hard to maintain a good credit standing.
Cutting down available credit can affect a credit cardholder a number of ways. First, with their credit cut down to a lower level, a credit card holder will have a lowered spending limit which can be a problem for credit card holders who make large purchases regularly with their credit cards. Second, if a credit card holder misses the announcement about his credit limit change, then there is a high probability that he is going to go over the limit and get hit with an overcharge fee.
The worst side effect, however is when the credit card holder’s credit score gets hit. A credit score is a number that every credit card holder carries. The number is maintained, monitored and calculated by FICO. It is essentially a measure of how risky a borrower a consumer is. Consumers with low credit scores are considered to be risky. Those with high scores are not. The magic number is these days is 760. A score higher than that makes you a good borrower. A lower score makes you a risky borrower. Lending companies use FICO scores to determine how risky a borrower is. Usually, those with low scores get their loan applications denied or worse, they get their applications approved but get sky high interest rates.
One of the biggest factors that determine a consumer’s FICO score is the ratio between his available credit and his balance. A lower balance to available credit ratio means that the borrower has a lot of credit available to him which makes him a non-risky borrower. Of course, when a credit company cuts down available credit, that ratio is negatively affected which in turn brands the card holder as a risky borrower.
Thus, when credit card companies began cutting available credit, many credit card holders including those with stellar credit scores, saw a drop in their scores. With lowered credit scores, these card holders who once were responsible borrowers are now getting branded as risky borrowers instead.
