Eight Ways to Safeguard Your Credit
Armed with a brand new college diploma, a burgeoning company, and a $20,000 credit limit on his business card, Charles Brown – the 22 year-old owner of a small entertainment business in Richmond, VA – was well on his way to building his business. That is, until his credit limit dropped. "I went to make a business purchase this past November and my card was declined," recounts Brown. "American Express dropped by credit limit from $20,000 to $800 overnight." Brown isn't the only one coming up short on credit. As interest rates rise and credit limits across the country plummet – even among the best credit holders -- an increasing number of Americans are struggling to hang on to their current credit card terms.
Here are eight ways to safeguard your cards:
1 - Balance your balance
After calling his card issuer, Brown was informed that he lost his credit limit, in part, due to the fact that he had held a revolving balance of $5,000 to $6,000 every month for the past three years. While holding a credit card balance under 30 percent of your credit limit shouldn't identify you as a risk, young card holders and those with poor credit history have a higher chance of hanging on to their current credit terms if they keep their debt below the 20 percent mark.
2 - Spread the debt
Those at risk of going over the 30 percent mark may want to consider splitting the debt onto two cards says Becky Palmer, education director for the Consumer Credit Counseling Services of New Hampshire and Vermont.
"Consumers are better off spreading their [debt] balance over different cards than accumulating all the debt on one, but it all depends on your credit history" says Palmer. "Seeking too much credit will create inquiries in your credit history, which in return will hinder your score."
Palmer recommends dividing debt up between two cards only as long as the consumer pays off both cards each payment period. If debt looks like it's beginning to spiral out of control, she advises consumers to consolidate debt back down to one card and focus fiscal resources on paying it off fast.
3 - Raise your score
The easiest way to avoid changing credit card terms is to prevent a disaster before one strikes. By taking active steps to raise your credit score, consumers can help prevent card issuers from raising interest rates and lower credit limits.
"There are a number of simple things people can do to help their credit score," says Candy Wright, Immediate Counseling Group manager for the Farmington Hills, Michigan-based nonprofit, GreenPath Debt Solutions. "Check your credit report to make sure it's accurate. Don't overextend yourself financially. If you have a lot of open credit that you don't use anymore, close that… The higher your credit score is, the less credit card companies will regard you as a risk."
4 - Seek counseling
One of the easiest (and fiscally beneficial) ways to hang on to your current credit terms while simultaneously improving your credit score is to enter a debt elimination plan through an accredited credit counseling agency, says John Keller, spokesman for the American Credit Foundation, a nonprofit credit counseling service based in Midvale, Utah.
"Those enrolled in a debt consolidation program get concessions from creditors and won't have their credit terms changed," says Keller. "When clients are in a [credit counseling] program, they're protected from sudden changes credit issuers might make."
Keller advises those in need of credit counseling to seek an agency that's nationally accredited and certified by the National Institute for Financial Counseling Education.
5 - Pay well with others
How can you lose your interest rate and credit limit overnight? One way is to default on any loan or card.
"The only way to keep your current credit terms is to remain in good standing, not only with your current card, but with all creditors on your [credit] report," says Wright. "You can actually lose your terms on one card if you miss a payment on another."
To ensure that your payments arrive on time every month, try keeping a debt calendar that shows when you have credit card bills coming up or enrolling in an automatic bill pay program.
6 - Stay active
If you want to hang on to all of your cards – even the rarely used ones in the back of your wallet – brush the dust off and use them, says Palmer.
"A lot of companies are starting to close accounts if they are not being used, even if you have good credit history," says Palmer. "To ensure that a long-standing account isn't closed due to inactivity, charge a small amount and make sure you pay the balance in full."
The advice especially applies to consumers who keep a special card around for emergency use only. Those who don't use the card periodically may find that it's unavailable when emergencies pop up.
7 - Take precautionary measures
Instead of defaulting on a debt, Wright recommends taking proactive steps to preserve your current credit rates.
"If you have, say, an old medical bill that's about to go to collections, credit card companies have hardship programs that can prevent you from defaulting," Wright says. "These programs are temporary, but they give consumers the opportunity to repay their debt rather than have it damage their credit score."
Usually lasting anywhere from six months to one year, hardship programs offer lower interest rates and better repayment terms temporarily for trusted consumers stuck in a financial bind. While the credit issuer usually suspends credit use during the hardship program, those who enroll will have the opportunity to reduce their debt, lower their card payments, and will have a higher likelihood of keeping their current credit terms.
8 - Ask for help
If you do lose your credit card terms, you may be able to get them back simply by asking how. A 2007 survey by Consumer Action, a nonprofit credit education and advocacy group based in San Francisco, shows that if a consumer's interest rate is raised, 75% of all banks would lower it again if the cardholder maintained a consistent payment record.
"If [the consumer]'s been an outstanding client and their history with that creditor is really high, there's a chance that they can call in and get their conditions changed," says Keller. "They should also remember that ultimately that decision is up to the creditor."
While there's no guarantee that a phone call will win credit terms back, being honest and communicating directly with your credit card company is perhaps the only way to hang on to the credit you currently have. "I don't have a bad credit reputation, but with the way the economy is, they said that I'm suddenly a risk," says Brown. "If it can happen to me, it can happen to anybody."
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