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Sly Tactics of the Credit Industry

As I’ve mentioned in the past, I’m on pace with the cleanup of my financial house – this includes paying down my existing credit card with Citibank. Many banks are trying to limit their exposure when it comes to credit, so in the last year or so, they have been lowering credit limits with limited notification to customers. While decreasing the credit limits reduces bank exposure, it negatively affects your credit rating because your debt-to-credit ratio never changes or increases (which is NOT a good thing).

For example: If you have a card with a $5000 credit limit on it and you have a balance of $2500 on it, your debt to credit ratio is 1 to 2, or 50%. If the bank comes back and reduces your credit limit to $3000, your percentage becomes 83.3%, well above accepted limits. Even 50% of the credit limit as a balance is too high these days; in order to keep your credit rating happy, you need to have no more than 25% to 30% of your available credit limit as a balance.

So, when I hear “scams” like the one that got thrown at me this morning, I’m bound to be upset. I had to cancel my card because I received a notification that my card information may have been compromised due to some hacker. That happens. So when I called to authorize the new card, Citi then asked me if I wanted to participate in a program that would give me a 20% “credit” on any amounts paid over my minimum amount due. Here’s the catch: you have to agree to it for a 6 month period AND you have to agree to have your credit limit lowered as you pay it down. I have always been on time with paying my Citi credit card and have always paid more than the minimum amount. Always. But I have a problem with them trying to compromise my FICO score in their efforts to minimize their exposure. The terminology they used wasn’t clear – the lady telling me about the promo was reading from a script, and when I told her, “I’m sorry, I don’t quite understand what you mean by that…”, she had to struggle for an explanation that was close to the meaning. And I got the sense that not many people questioned what was being said. They either said yes or no, and that was it.

I think that most people just hear, “Oh, they’re going to give me a 20% credit for paying more than normal…” and not think about the ramifications of the decrease in their credit limit. You are essentially screwing yourself. My advise: don’t do it. Improving your credit scores are hard enough in this day and age; don’t give the banks more fodder to screw you. Just keep paying it down and limit your usage, and it will be fine.