Credit Alert

August 11, 2008
by Edward Jamison, Esq.

Most people have never checked their credit score. They have always used credit wisely and have probably never been denied a loan. Long story short, they have never really had a good reason to worry about their credit score.

They do now.

Why? Because banks are systematically lowering credit limits on credit cards and HELOCS, even for borrowers with spotless credit records.

So when they receive notification from their bank of a drop in their available credit, they usually don't think too much about it at first. They say to themselves that they had no plans to max out their credit cards anyway. And besides, they just got their HELOC as a financial safety net or they only used it to finance a new car at better rates with a nice tax deduction.

But what the banks aren't telling them is the negative impact lowering their credit limits will have on their credit score.

As soon as a borrower's credit limit is lowered, it changes their Credit Utilization Rate, (CUR), which is a major component of their credit score. Credit Utilization Rates are calculated by dividing outstanding loan balances by the amount of credit available.

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