PHAM & CLOVES, PLLC

Have you had your credit card available balance lowered lately?

A common practice among credit card companies these days is slashing available credit limits to either close to the outstanding balance or even lower! Currently, there is no law that prohibits this action. Legislation addressing this issue is not scheduled to arrive in force until 2010. In the meantime, watch your account closely, or you may be in for a rude awakening.

For example, let’s say your card balance is $3,000 and your available credit is $5,000. The credit card company, on their own and without notice or permission, reduces your available balance to $2,500. Now, you are over the limit by $500 and are assessed an “over the limit” fee of $35. The over the limit fee is the injury, the negative effect of the action is the insult. Here’s why.

A large part of your credit score is attributed to how well you handle credit. That is, how much of your available credit have you used? The less “available balance” you have on a card causes the ratio of used credit to available credit to increase, thereby reducing your creditworthiness and lowering your credit score. Can you say vicious cycle? Sure, I knew you could. But wait, there’s more!! By causing an over-the-limit situation by reducing the available balance, the credit card companies have just put you in default of your agreement. Yes, that’s right, you are in default because you have gone over your available limit; and, you must now be punished! You guessed it, your low, low interest rate of, say 15%, is now at the default rate of close to 30% or more! Your payments will have likely doubled! Can you see the spiral downward from here? Even if the available balance cut was not deeper than your outstanding balance, if you aren’t aware of the reduction, you may inadvertently go over your newly lowered limit by mistake simply because you were not aware of the change. It is vital that you check your account often to avoid this potentially devastating problem.

Why are credit card companies doing this? Well, some say that it is a reduction of risk by lowering the potential for larger losses while generating some short term income from over the limit fees. Go capitalism! What is probably the worst thing about this is WE CAN DO NOTHING TO STOP THIS PREDATORY PRACTICE at this time!

Watch your accounts closely. Before you make major purchases on your cards, or even routine ones, check your available balances. Better yet, if you can, use a debit card or a debit card with credit card option. This could save you potentially thousands of dollars and it may help you escape ravaging your credit score.

If your credit cards go unpaid long enough, you may be sued or forced to arbitration. If you have been sued or have been given notice that you are involved in arbitration, contact a Veritas Legal Group Credit Card Defense Attorney at 832-484-9015 to discuss your legal options or contact us via our online form. The sooner you understand your rights, the better you can prepare to defend them.