It's Your Money: Credit limits tightening - WKOW 27: Madison, WI Breaking News, Weather and Sports

It's Your Money: Credit limits tightening

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As this week's stock market plunge pointed out, we still haven't seen the end of the mortgage crisis.

And even if you're not in danger of foreclosure, the ripple effect may hit you before you know it.

In this It's Your Money report, how tighter credit is being passed on to all of us.

Many of us are using the problems in the mortgage and credit industries as examples of what not to do with our personal finances.   For instance, many people are piling up less debt and paying off the debt the do have.   But as credit gets tighter, even those of us with impeccable credit records can end up paying a price for other peoples' problems.

"What companies are doing now is they're lowering, reducing your credit limit," Sol Carbonell of Consumer Action says.

She says their 2008 credit card survey shows some companies exercising their legal right to cut the amount customers can charge on their card.

"They're purchase are being denied; or not being denied.  And later they realize they went over the limit because the limit was suddenly reduced and they had no idea of it," Carbonell says.

Consumers who don't know ahead of time can end up using their card, going over the lower limit, and then getting hit with penalty fees for exceeding their limit.   

Another problem: a lower limit can suddenly put you in a position of using too much of your available credit, which can lower your all-important credit score, which means your interest rates could go up.

It's a dizzying domino effect, but you can avoid being caught off guard by carefully reading everything you're sent by the credit card companies.

"Many times we think the notices we get are junk mail and we get rid of those.  The companies are actually required to send you a notice of changes to terms and conditions 15 days in advance of those changes taking place,"  Carbonell says.

The general rule to keep your credit limit from negatively effecting your credit score is to use no more than half of your available credit. So, if your card has a $10,000 limit, keep your balance at $5,000 or less.


 

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