Another Unfortunate Consequence of the Mortgage Crisis
In order to further reduce their risk, lenders are lowing credit card limits, reducing the number of allowable balance transfers, increasing interest rates, and generally limiting credit lines. They are doing so in response to more and more people relying on credit cards to pay their bills during our slow economic times. Some are saying this is a good thing; if borrowers have less credit available to them, they are less likely to overextend themselves.
Unfortunately, this is a load of crap. The damage has already been done, and lenders are doing nothing more than trying to save their own tails. The credit limitations are actually really hurting people. For example, let’s say you have a credit card with a $15,000 limit on it, and you have a $6,000 balance. If the credit card company lowers your limit so you won’t “overspend,” you will then have let’s say an $8,000 card with a $6,000 balance. This drastically increases your “credit utilization rate,” which is an important factor in determining your credit score. This in turn makes you less able to secure credit, and makes the credit you can get cost you more.
So, we continue the downward spiral of defaults leading to less credit, leading to more defaults, ad infinitum.
