Credit Card Company

As credit card profiling, credit limit reductions and interest rate hikes weren’t enough there is an even greater more dangerous tactic that creditors are using causing a snow ball like effect that’s hitting even the most pristine credit worthy consumers.

By 2010 there is an estimate that there will be $2 trillion less in credit limit availability in the marketplace or 40%.

Recently there was a video on CBS about Miriam Majors, a young woman who had her credit limits reduced because of credit card profiling and as a result the ‘balance chasing’ tactic that creditors are also using created a snow ball effect of problems for Miriam.

What is ‘balance chasing’?

If a creditor sees that another creditor has reduced your credit limits therefore increasing your debt to credit limit ratios than this is what triggers the second creditor to issue an interest rate hike.

Here’s what happened to Miriam Majors:

The Snowball Effect

• Her credit card’s (creditor #1) credit limit was reduced by $7,000
• Her FICO score went from 783 down to 733 (50 point reduction)
• Her other credit card company (Bank of America #2 creditor) raised her interest rate from 7.9% to 28.99%!
• Her monthly payment increased with creditor #2 because of the interest rate hike
• She spent her personal time to find out why this happened with Bank of America
• No comment from Bank of America just policy because her limits and personal credit ratings changed

Her solution:

• She canceled her credit card account with Bank of America
• She opened a new credit card account with her credit union

Don’t think for a minute that your 750 or 780 credit score is immune to what’s going on in the credit card industry. As you can see that one creditor that decides to reduce your credit limit can trigger a snow ball or domino like effect on your credit and finances and leave you powerless to defend it.

Miriam Majors did take action but unfortunately the damage is done and even though her credit score is within prime rate qualification the time, frustration and money it cost to her is something that will stick with her for life.

Remember –  Anytime you suffer a setback or disappointment, put your head down and plow ahead.  ~ Les Brown

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About the Author

Marco Carbajo is a business credit specialist, author, speaker, and founder of the Business Credit Insiders Circle. He is a weekly columnist for Dun & Bradstreet Small Business Solutions, a business credit blogger for All Business & American Express Small Business and author of “Eight Steps to Ultimate Business Credit” and “How to Build Business Credit with No Personal Guarantee.” His articles and blogs have also been featured in Business Week, The Washington Post, The San Francisco Tribune, Scotsman Guide, Alltop, Entrepreneur Connect, and Active Rain.