Christy Hardin SmithCommunity

Check Credit Cards: Banks Playing Fast And Loose Again

A fraud by any other name is still a cheat:

If you haven’t had the credit limit cut on your credit card recently, count yourself lucky. Risk-averse card issuers are getting slash happy. And while many cardholders gripe that such cuts slice razor-close to their balance amounts, for an unfortunate few the cuts go far deeper: below what they currently owe….

And all that balance reduction couched in industry cheery "fiscal responsibility" language cloaks for ready public PR pushback? It can result in some hefty fee collection for the card issuer without them getting any notice until it’s already been charged out — on the card — putting you further over your newly lowered limit and adding even more fees to your balance.

See how tidy it can all be for the bank’s bottom line?

Paul Pensabene of Saratoga Springs, N.Y., received a statement from HSBC on Dec. 8 that said he had a $359.99 balance and remaining available credit of $8,640. But when he went online to pay the bill several days later, his online account showed that same balance put him over his newly-reduced credit line of $300. And that didn’t include the $35 over-limit fee. Pensabene grappled with customer service until they agreed to remove the fee, and then paid the balance in full. "All I could think was, ‘Good lord, what if this is happening to someone that couldn’t pay their balance off in one shot?’" he says. "They’d end up in default with these fees piling up."…

Even worse? That balance problem can also drag down your FICO credit score.

Which stays with you for a long, long time:

While the fees, frozen accounts and default interest rates resulting from credit-line cuts can sting your finances, they can do some serious long-term damage to your credit score. Your credit utilization ratio — the total amount of debt you owe in relation to the amount of credit available to you — accounts for roughly 30% of your score. A credit line cut has the potential to decrease your score by 50 points or more if you don’t have much other available credit, says Craig Watts, spokesman for FICO, the company that calculates and issues the credit score that most lenders use. 

Let this be a warning to you: be vigilant. Because Congress is taking its own sweet time reintroducing the Credit CARD Act to protect consumers against questionable and unscrupulous credit card company "squeeze the little guy until someone makes us stop" practices.

Don’t wait for a bill — check online frequently. Better yet, don’t use a credit card if you can help it.

Bad business is as bad business is doing. So why reward them with more interest and fee collection if you can avoid it?

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Christy Hardin Smith

Christy Hardin Smith

Christy is a "recovering" attorney, who earned her undergraduate degree at Smith College, in American Studies and Government, concentrating in American Foreign Policy. She then went on to graduate studies at the University of Pennsylvania in the field of political science and international relations/security studies, before attending law school at the College of Law at West Virginia University, where she was Associate Editor of the Law Review. Christy was a partner in her own firm for several years, where she practiced in a number of areas including criminal defense, child abuse and neglect representation, domestic law, civil litigation, and she was an attorney for a small municipality, before switching hats to become a state prosecutor. Christy has extensive trial experience, and has worked for years both in and out of the court system to improve the lives of at risk children.

Email: reddhedd AT firedoglake DOT com

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