Haptotrope (haptotrope) wrote in personalfinance,

"Balance Chasing"

So I learned about a new thing today. Its called "Balance Chasing."

So I, and likely you, may have gotten a letter in the mail from your credit card company (mine is HSBC) reining in my potential spending. I don't have much debt, so I wasn't terribly concerned, until I logged in and looked at my account and they had lowered my balance to right around what they next APR and fiance charges will cost me. Which, will, in my next cycle put me right over the edge, and into "overlimit territory" -- if it doesn't look 'too close for comfort' now. And adding overlimit fees on top of the absurd interest rates-- This sucker is getting paid off as soon as the balance transfer goes through and usage frozen.

BUT it would seem as if there is a more nefarious plot at work -- this tom foolery can affect your credit score. And if you're like me, you maybe made some bad choices, or ignorant choices, and now you get to try and spend a good chunk of your fiscal energy trying to be a good doobie and working on your FICO score.

And this is what I found when I looked it up to see what the bejeebus is going on.

From Consumerist.com blog comment on an AMEX article.
ohiomensch -- 12:27 PM on Wed Oct 8 2008
AMEX practices "Balance Chasing", if they think you are any kind of risk, they will lower your limit to about $100 over whatever your balance is, and then all your other credit cards will up their interest rates based on your credit usage ratio.
So suddenly that $10000 limit you had gets reduced to 2000, and if your balance is 1900 it looks like you are maxed out, and other cards respond by charging you more. Nice going Amex.

So here are more links for your information:
  • Credit Matters Blog- Chasing Balance- What It Is And Why it Sucks

  • Wall Street Journal Blog- Are Shrinking Credit Limits Silently Hurting Your Credit Score?

  • Yahoo Finance- How to Blow Your Credit Limit Without Spending

  • Ways to Respond to a Credit Limit Cut

    I'm cool with credit Card Companies tightening their belts, since we're in a huge economic scandal that they were hugely a part of -- but I wonder how much of all this is once again "how the little guys are made to pay for the bigger guys' mistakes" and how much of the broad sweeping data useage will betray the consumer in the end.

    Anyway! Keep an eye on the mailbox and another in your online credit card statement!
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    Thanks for this post!

    I didn't realize being close to your limit affected FICO too. What doesn't, I guess. :/
    Indeed it does affect it because you have little /available/ credit.
    Thanks for sharing. I wasn't aware of this chasing practice. I'll be sure to spread the good word.
    if you bounce around some of the blogs above you'll find other profiling issues such a AMEX using 'where you've shopped" to determine how to limit your credit profile -- and other less excellent practices.
    That is creepy. But good to know. Thanks for posting about it!
    I had an HSBC or a Household Bank credit card for several years, carrying a balance back and forth as I bounced around a wad of credit debt taking advantage of the occasional balance transfer specials they would offer. However, I had paid them off and hadn't touched my card for about 6 months or so when I got a letter from them in the mail saying they had closed my account for nonactivity. Which of course dings my credit score. But I say good riddance, I will never bank with them again if this is how they reward me for being a money-making customer for years.
    Interesting about the non-activity thing. That's annoying. There is a lot of credit douchbaggery going on, and I am not a fan.
    I am just F-ing LUCKY that an inheritance got my partner and me totally out of credit card debt just before the s*&t hit the fan! Even so, this all makes me tremble because of "what could have been" for us. We closed all credit cards but one, after paying them off, and we only keep that one for convenience and manage to pay it off immediately after using it. But it could SO easily be otherwise. I have a lot of empathy for those who are caught in all this.
    Totally, I mean I could have been screwed, but not as badly as some of the other folks out there... My paltry debt isn't what a lot of people got going on... and My paltry debt is going away, since earning interest on my savings can't compete with the hemorrhaging going out with the credit card.

    We had pretty bad debt, and no savings. And -- if we've learned anything from our close call, it's probably that we really need to figure out how to live so that that never happens again! It's tough, because a lot of habits and ways of thinking about money have to change... we're well aware that there's not going to be another inheritance to rescue us if we screw it up...