When a credit card company lowers your limit or increases your APR, this may lower your credit score
Car shoppers should make sure there have been no changes to their credit cards recently that would make their credit score drop
Check your credit score before you apply for a car loan
Tips to Protect Your Credit Score From Negative Changes By Liz Opsitnik Thursday, May 28 2009 11:08
The recent changes credit card companies are making to consumer accounts is affecting credit scores. When a credit card company lowers your limit without warning, your available credit is lower, which means your credit score may drop.
Another tactic credit card companies have used lately is to raise the interest rates on many accounts. While the government passed new laws last week to stop these kinds of changes in consumer credit card accounts, some of the damage may already have been done.
If you’re thinking about applying for a car loan in the near future, you should check your credit card accounts and your credit score to see if there have been any changes. If you see your credit score has dropped, you may want to increase it before you apply for an auto loan so you can get the best interest rates.
CNBC’s “On the Money” Web Extra gives different ways to protect yourself from these changes that can have a negative effect on your credit score. Credit expert John Ulzheimer says consumers should follow these tips:
1. Don’t wait for your credit card issuers to cut your limit. Make the assumption that some of your limits will be reduced. If you’re reactionary, you may be too late.
2. Think about opening a new card – this week. The reason is that you want more available credit on your reports to compensate from if (when) your credit limits are slashed. Consider opening the card with a smaller lender like a regional bank or credit union as they are in less trouble than the big issuers.
3. Avoid doing anything that will end up closing your account for good. You may get a letter saying your interest rates have been raised – fight the emotional urge to stick it to the issuer by closing your card. Instead, pay off the balance as quickly as possible and keep the account open to protect your score. Don’t let your anger or frustration compound the eventual damage that could be leveled on your credit.
Comments
rick
I wonder how long it takes for you to see if your credit score has dropped if your cc lowered your limit. Why would they want to lower your limit anyways? Don't they make more money if you charge more?
That happened to me about six weeks go (right in the middle of shopping for my first house, too, darn it). When I finally did apply for a loan with a lender about 3 weeks later, the lower credit limit was reflected in the credit report. Doesn't take long! I've read they CC companies don't like having all that unused credit out there. Apparently they were afraid I'd buy a car with my line because they cut it $10,000, even though I've never missed a payment and was paying off a $3K balance. It didn't torpedo my credit but the score did drop about 40 points. All I can say is, thank God for FHA loans.
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