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Credit Card Company dropped credit limit despite responsible borrowing of cardholder

By Brian Anderson
Published: Thursday, July 29th, 2010

A resident of Wisconsin complained about the drastic drop in his credit limit despite religiously paying for his credit purchases. Mike Higgins, a Chase card user for over a year, reported that his card used to have a $50,000 credit limit. He said that he never exceeded the said credit limit and had paid his dues at a regular basis without leaving unpaid accounts. He added that the highest purchase he had made was at around $4,000 to $5,000 when he bought a pair of hearing aids. However, after almost one year of making the said purchase, his credit limit was drastically reduced by $30,000 making it only $20,000. He stressed that while he maintain his four other cards the same way as Chase, none of those dropped his credit limit as low as the way Chase did. As a result, Higgins was left to worry as to its effect on his credit report much more to his acquisition of credit scores.

Jeremy Simon of said that although banks’ decisions to reduce the credit limit can indeed affect the credit scores, a clean history of borrowing must help to lessen the damage.

As the recession came in full blow few years ago, banks have fatally tightened their lending criteria affecting most of the consumers. This tightening included the slashing of credit card limits of the majority of cardholders regardless if they have a good credit records. A process called the utilization ration is applied to those accounts with reduced credit limits. Utilization ratio is the comparison of the debtor’s liabilities to his credit lines. This is likely to affect accounts with extremely huge debt load since credit scores are partially correlated with the ratio between the debtor’s liability and his available credit. Lauren Bowne, a staff attorney at San Francisco-based consumer rights group Consumers Union, said that this utilization process only explains why there is a drop in the credit card score. However, she pointed out that having a good payment record must help to rescue the credit score from constantly dropping.

Simon advised the debtor to pay in full his remaining balance so that even if his limit dropped, the utilization ratio still won’t vary. But leaving the card unused won’t do better in maintaining a good credit score. Having a zero balance for a very long period won’t help raise credit score because it doesn’t give a say as to the debtor’s ability to manage accounts. Furthermore, an unswiped card has its negative effect on the banks since they still spend on maintaining open lines of credit. Re-allocation of unused cards to another user is usually practiced by majority of the banks, said a representative from the American Bank Association.

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