Tuesday, August 7, 2012

Is It Legal for a Credit Card Company to Lower My Spending Limit?

In the wake of the Credit Card Accountability, Responsibility and Disclosure Act, consumers suddenly found themselves the proud bearers of more rights than they'd ever possessed before. But the CARD Act isn't Jesus, my friends, and when it comes to lower credit card spending limits, we're still at the mercy of our creditors. 

Your Bank Can Cut Your Spending Limit

You've been a good customer to your credit card company for years. You make purchases, you always pay on time, you have excellent credit, a stable job, yada yada. You watch the financial freefall going on around you but are certain that you're safe from the debt plague that's sweeping the nation. That is, of course, until you recieve a notice in the mail that your credit card company is slashing your spending limit. 

Your bank can lower your credit limit at any time.
Think it can't happen to you? Think again. Credit card companies can cut your credit limit anytime and for any reason. If you happened to keep the infinitesimal ant-print that is your credit card agreement, you'll notice that your credit card company reserves the right to alter the terms and conditions of your card if the company's policies change or if a "threatening economic climate" forces your credit card provider to tighten its corporate belt. You don't have to miss a single payment to lose your lofty spending privileges. 

Credit Card Companies Must Notify You in Writing

One big change the CARD Act brought about was that credit card companies could no longer make arbitrary decisions – like lowering your credit card's spending limit – and put them into practice almost immediately. If your credit card provider wants to change the terms of your original contract, it must provide you with written notice of the impending change a minimum of 45 days before the change goes into effect. This gives you the opportunity to cancel the card if you don't agree. 

Should I Cancel My Credit Card?

You'd be surprised at how many people, angry with their credit card companies for imposing changes they don't feel they deserve, call up the company and cancel their accounts. They have five years to pay down the balance, so no harm done, right? Wrong. 

The damage that's done when a credit card company lowers your credit limit (I'm referring to the fact that this skews your credit utilization ratio and, if you carry a balance, can hurt your credit score) is only exacerbated if you lose your temper and cancel the card. You won't just lose a portion of your unused balance, you lose all of it. Even if you don't carry a balance on the card, the loss of available credit will cause your credit score to suffer. The solution? Pay down your balance within the 45 days before the change takes place or transfer the balance to a new credit card. In the meantime, you can always wrestle with your original credit card company to restore your higher credit limit – something you cannot do if you cancel the account. 

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