The military is part of a growing number of Americans who are seeing their credit limits negatively affected. Even people with good jobs, low balances, and solid payment histories are seeing their credit scores slip.
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Why Your Credit Card Company May Limit a Good Customer's Credit

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Many military members are diligently working to maintain credit scores above 730. As difficult as it may be, military members know the importance of paying bills on time, sending in more than the minimum credit card payment each month, and keeping your credit card balance to credit card limit low enough.

Still, many military members are finding their credit card limits slashed, leaving them maxxed out on their credit cards or close to it. Since credit ratio is a key component that credit bureaus use to determine creditworthiness, when your credit card debt-to-limit ratio soars, your credit score instantly plummets.

The military is part of a growing number of Americans who are seeing their credit limits negatively affected. Even people with good jobs, low balances, and solid payment histories are seeing their credit scores slip.

What's going on with your credit card and more importantly, with your credit score?

IS YOUR CREDIT SCORE AT RISK?

About 16% of credit card customers had their limits reduced between April 2008 and October 2008. About 11% of these generally had very high credit scores, and no late payments, large cash advances, bounced checks, unemployment, or risky mortgages.

Even a small FICO score drop in today's environment of tight credit can make the difference in getting a mortgage, a car loan, or another credit card, and it can have an impact on the interest rate a borrower pays. The FICO score ranges from 300 to 850 and the best mortgage rates are generally given to borrowers who have at least about 730.

RISING BANK DEFAULTS

Banks are cutting limits in the face of a deteriorating economy. US credit card default rates reached record highs in May 2009, near or even above 10% for Bank of America, American Express, Citigroup, and Capital One.

The worsening unemployment situation is causing banks to worry that even good customers could quickly become risky customers. As a result, credit card companies are preemptively slashing credit lines, especially those that aren't being used.

ARE YOU A GOOD CREDIT RISK OR A CREDIT LIABILITY?

Banks might be tightening available credit in reaction to new federal legislation taking effect in the middle of next year that will restrict how credit card companies raise rates.

Among the other rules designed to benefit customers, banks will only be able to raise rates on existing balances if a customer is 60 days late on a payment, and must provide 45 days' advance notice before increasing rates.

HOW TO PROTECT YOUR CREDIT

Even if you think you're an excellent customer, you may not be; if you just pay the minimum payment each month, that's not ideal. Try to pay more than the minimum due on your credit card and carry a balance no larger than 30% of your credit limit.

In fact, keep the balance-to-limit ratio below a third and keep a close eye on any changes to credit reports. Pay down credit card balances or convince lenders to restore limits.

Access your free credit report once a year from each of the three credit bureaus. Military members are entitled to a free credit report as well.



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