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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