Posted on December - 23 - 2009
MUST READ if you are going to pay down credit card balances
As most of you probably know, maxing out your credit cards seriously lowers your FICO credit scores.
So if Santa Claus gets you a cash present or you otherwise get some money, you might think that paying down your high rate credit cards will get you higher credit scores and lower interest rates.
HOWEVER, OFTEN the banks will LOWER YOUR CREDIT LIMIT to slightly above your NEW balance!
That the bank will lower your credit limit after you pay down your balance is especially likely if you have late payments or other derogatory data on your credit reports, but I had Barclays actually CLOSE my Juniper credit card when I had not a single derogatory account.
How to AVOID having the credit limit lowered after making a large payment:
Call the bank BEFORE you make the payment and ask whether they will lower the limit if you pay down the balance. You may not get a straight “yes” or “no”, but they could state that it depends on your credit rating. Obviously, they have the right to change the terms if you have new lates or collections, but I would try to get them to state that they will only reduce your credit limit if you have NEW derogatory information reported.
Of course the call needs to be LEGALLY RECORDED.
In my state, Arizona, I don’t need their permission to record.
They might still lower your credit limit even if they promised not to because they don’t expect their customers to record the calls and usually software determines when to reduce credit limits, but you can then demand that they increase your limit again unless you had adverse changes to your credit report.
Do NOT count on having credit available after paying down high balances.
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