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As credit card issuers have struggled to stay in business while credit card defaults have steadily increased, one of the tactics they have used to reduce the risk of further defaults is to cut customer credit lines. Offering smaller credit lines reduces the chance of consumers piling up credit card debt and then finding themselves unable to pay. For credit card holders though, the notification that their line of credit has been reduced is generally not well received. For many consumers, their credit lines represent an emergency fund that can be tapped into if unforeseen circumstances call for additional funds.
Most consumers want to keep their credit line intact especially since new credit is not easy to find in this environment. If keeping your credit lines intact is important to you, pay attention to these areas.
Avoid Late Payments: There are a lot of great reasons to avoid late payments, including reducing fees, maintaining a credit score, and staying in control of your debt balances. However, late payments can also be one of the fastest ways to get your credit line cut. Credit card issuers are looking to reduce their exposure to risk and any borrower who can’t make their payments on time represents an inordinate amount of risk. If you can’t stay current and be a reliable borrower, it’s hard to expect your creditor to have confidence in your ability to make steady future payments.
Keep Your Credit Strong: Credit card companies have the ability to regularly check your credit and they have tools that help them identify potential default risks in their client base. Maintaining your credit lines is about staying current on all of your debt payments and not just your credit card payments. You should also regularly check your credit score to make sure there are no mistakes dragging down your credit score.
Have A Reasonable Amount Of Debt: There is such thing as having too much debt and if your debt to income ratio is too high, it’s easy for creditors to start to worry that you’ve bitten off more than you can chew. Organize your debt into essential and non-essential categories and consider closing old lines of credit that you don’t anticipate needing anymore.
Use Your Credit Card: Conventional wisdom would tell you to use your credit card sparingly but the best course of action is to use your credit card as long as you can pay it off every month. A lack of use is one of the most common reasons that credit card issuers reduce or eliminate credit lines. Unused credit lines are a risk for creditors but they also represent cash that must be held in reserve in case you decide to start using your card. Because cash is at a premium with defaults on the rise, cutting outstanding credit lines helps a lender reduce their capital requirement.
