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Registered: ‎03-24-2009
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my credit limit gets lowered as soon as I pay it down- why?

The only negative thing affecting my credit score right now is "too much debt to credit limit ratio".  So I have been trying to pay down my balances lately.  Recently I have had three seperate credit limit to just over my current balance.  For example, let's say I had $5000 on a card with a $7500 limit.  That's a 67% debt to limit ration, which is high enough that it negatively affects my credit score.  So I pay it down to $4000 over a few months.  Immediately my credit provider sends me a letter telling me they are lowering my limit to $4200 for no good reason.  Now I should have a 53% debt to limit ration but instead I have a 95% debt to limit ration!  This lowers my credit score, which raises my interest rates and makes it harder to pay off my balances! 

 

I have no other things that would cause this!  No late payments,  no over limit charges, no defaults of any kind.

 

Can I fight this?  Is it legal?  What can I do to stop it other than pay off my balances in full - which is not remotely possible at this time?

 

GPeters 

Super Contributor
Posts: 6,026
Registered: ‎09-18-2007
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Re: my credit limit gets lowered as soon as I pay it down- why?

It is called balance chasing. They flagged you as high risk and they trying to get as much as they can as soon as they can. The more you pay it down the more they will reduce your CL. There are several other posts on this by others.
Established Contributor
Posts: 513
Registered: ‎04-03-2007

Re: my credit limit gets lowered as soon as I pay it down- why?

[ Edited ]

Gpeters wrote:

So I have been trying to pay down my balances lately.  Recently I have had three seperate credit limit to just over my current balance. 

 

This lowers my credit score, which raises my interest rates and makes it harder to pay off my balances! 

 

I have no other things that would cause this!  No late payments,  no over limit charges, no defaults of any kind.

 

Can I fight this?  Is it legal?  What can I do to stop it other than pay off my balances in full - which is not remotely possible at this time?

 

GPeters 


If you have only lately attempted to pay down your balances, that is most likely the risky behavior that brought on the Adverse Action. Carrying (revolving) balances for long periods of time is probably what got you targeted for credit limit decreases and interest rate hikes. Your creditors are in "collection" mode. they are trying to collect as much money as possible while keeping you from running up more debt. That is the primary reason for chasing your balances.

 

Additionally they don't want you borrowing more money elsewhere to make ends meet or to pay down your existing balances. That is one reason they don't mind trashing your credit scores.

 

They can do this and it is legal. In fact the new "reform" laws going into effect next year gives them the excuse to stick it to the consumer in such a manner.

 

Congress got together with the big banks and enacted rate "price fixing" legislation. The new law prohibits them from raising interest rates on balances such as yours, even if you should actually become less creditworthy while being in debt to your creditors. This feature of the new law allows the big banks to raise rates and lower credit limits without fear that smaller banks and credit unions will compete for customers by offering lower rates. No lender will be able to raise interest rates on existing balances after July of next year. All lenders, will therefore have to levy unnecessarily high (permanent) interest rates whether they want to or not.

 

 The competition will take place by offering temporary lower rates for a specific time frame. Needless to say people who revolve balances for longer than 6 months will be paying very high interest rates with no way to transfer the debt elsewhere.  

 

You are just one of the first who has been bitten by the phenomenon. The good news is that your lenders might be willing to offer you a short term interest rate reduction if you ask. Make no mistake about it. It is definitely time to pay down the balances as fast as you can. The situation is only going to get worse. The only defense is to not have any revolving debt. As soon as your credit scores recover enough, an installment loan to pay off all remaining revolving debt might be the way to go.

 

Needless to say all new purchases should be made with cash. Any purchases made by credit card carry an interest rate surcharge.


 

 

Message Edited by CreditAble on 03-24-2009 03:06 PM
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Posts: 72
Registered: ‎06-06-2007
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Re: my credit limit gets lowered as soon as I pay it down- why?

This very same thing happened to me a few yrs ago, with a Providian Visa card I had.   They were later bought out by Wamu.  I think I had a balance with them that hovered around $1500 for a few yrs.  I believe my CL was $2500.  I paid off that balance in 2005 along with all my other CC balances.  Wamu immediately dropped the CL to $250.  I canceled the card immediately!  I know now that I should've left it open but I was just SO mad at them at the time, that I acted in haste. 
TransUnion712Date:10/09/2008/Equifax691Date:09/09/2008/Experian692Date:09/08/2008
Established Contributor
Posts: 672
Registered: ‎07-05-2008

Re: my credit limit gets lowered as soon as I pay it down- why?

This is exactly why everyone needs to always and forever PIF...
Established Contributor
Posts: 586
Registered: ‎03-03-2009
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Re: my credit limit gets lowered as soon as I pay it down- why?

AMEX is very well known for chasing balances.
Super Contributor
Posts: 5,703
Registered: ‎10-06-2007
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Re: my credit limit gets lowered as soon as I pay it down- why?


YoungEntrepeneur wrote:
AMEX is very well known for chasing balances.

They are doing that to my parents now.  One of many reason I dont like them and would never use one of their products.

11/28/2014 FICO: EQ: 796 EX:788 TU:803
Established Contributor
Posts: 586
Registered: ‎03-03-2009
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Re: my credit limit gets lowered as soon as I pay it down- why?

Same here. I'll never give them any of my business with the way they treated me. That's why it's been 3-4 months since I closed my AMEX account.
Senior Contributor
Posts: 4,214
Registered: ‎09-12-2008
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Re: my credit limit gets lowered as soon as I pay it down- why?

In today's market I would suggest you look at talking to a CU....maybe for BT before your get your CL's totally closed down after paid down.

 

Alliant, PenFed and USAA seem to be popular.  Alliant has been fairly easy lately for credit worthy apps.  The CU's only seem to pull EQ reports.  PenFed and USAA are a bit more tempermental about approvals, but Alliant has been giving CL's without requests for income or verification.

 

Local CU's could be viable too.  The conglomerates are not worried about your CL.....their worried about covering their butts. 

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09/03/2009 TU: 777, EQ: 776 ($8 balance on an account dropped me out of 780's)
03/28/2009 TU: 814, EQ: 810, EX: 781 (02/12/2009)
05/18/2005 TU: 563, EQ: 580, EX: 549
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