credit limit

The Impact of a Credit Limit on Your Credit Rating

Q: One of my creditors, Bank of America, decided to decrease my credit limit from $4,000 to $500. At the time when they lowered my credit limit, I had a balance of $700. So, that put me $200 above the limit at the time of the change.

They didn’t even call me, I called them. Representatives I talked to at Bank of America said no over the limit fee would be imposed, but nevertheless, I put my balance under $500 within a couple of days. I later contacted TransUnion and checked my credit report. I noticed that there was a remark stating that I went over my credit limit in the month of January.

No one at Bank of America has been willing to do anything about it. I want to know this: why is it my fault that Bank of America lowered my credit limit? They are the ones who put me over the threshold and made me look as if was an over spender when I was not. What are your thoughts on all of this?”

A: First let me say that I’m sorry for the situation in which you find yourself in, and you’re definitely not alone. You know that amid the ongoing credit crunch — and especially after the Credit Card Reform Act that just became effective in 2010 — that banks all across the country, have been very strict and severe in their policies and procedures of late.

Certainly not just Bank of America, but all kinds of credit card issuers, banks and lenders. Some are adding fees to credit cards. Some are lowering credit limits. Others are closing accounts outright.

I’m not surprised, frankly, that they didn’t email you or place a call to you. One of the ways that you can get around that in the future, certainly, is to enroll in a credit monitoring service.

The Benefits of Credit Monitoring

A lot of times, credit monitoring will alert you to a change, whether it’s a change to your credit limit or something else. You’ll often get that credit-monitoring alert before you’ll get that snail mail notice from the lender or the credit card issuer. So, keep that in mind for future purposes.

They obviously did notify you by mail, which was important. But to get to the heart of your question, this is what I would recommend you do because you’re grappling with some information being reflected on your credit report that, frankly, may or may not hurt you from a credit scoring standpoint.

Here’s why: Your payment history shown on your credit report lists something called the “account status” for any particular account.

A “status” notation on your account, when it’s in good standing, is going to say something like: “current,” “pays as agreed,” or “never late,” those kinds of notations.

Those are all showing accounts that are in good status. Obviously, if it was something negative, it would’ve said, “30 days late,” “was in collections” or something like that. You don’t have to worry about those kinds of issues.

Check Your Credit Score

However, “status” comments can make a difference when it comes to your FICO credit score, so you always want to be sure that the status comment shown is, in fact, current and accurate. Since you referenced your TransUnion credit report specifically, here’s what I would do if I were you.

First, I would make sure that the “status” listing on your account is currently correct. Even if it says on that other, sort of sidebar comment that you went over the credit limit in January, make sure that your current status is shown as “up to date” or “current.” That’s the key determinant that’s used to look at your credit score.

Additionally, I would make sure that the credit limits reflected on your account are, in fact, accurate. Your credit limit will be shown on various reports in different ways. Again, you referenced TransUnion only, but you should know that some credit reports list a “credit limit” or “original amount.”

If you see something that says “credit limit/original amount,” this number should reflect the amount of credit you were granted when the account was first opened.

Other references on your credit report that reflect your balance might be notations like “high balance.” This figure would show the highest amount of credit you’ve ever used for each one of your accounts. Some credit reports might simply say “balance” or “recent balance.” Of course, this dollar amount would indicate the last balance owed on your account as reported by the credit card issuer or the credit grantor.

Remember, though, that this information can take a month or so to wind its way through the system because creditors report at different times, usually when your statement has a closing date, and then the credit bureaus take a week or so to go ahead and update that information and to display that information to you.

If you find that your “status” account or your “credit limit” or “original amount” is inaccurate, by all means, dispute it directly with TransUnion. Here’s where you can go, just hop online and use the online dispute service that TransUnion offers.

I’ve used online dispute services in the past and they’re very fast. Typically, if you go by mail, it’ll take 30 to 45 days, but online disputes are much faster. Log on to http://transunion.com/investigate.   If you find your information after you’ve looked at your credit report is inaccurate, by all means, dispute the status notations, the amount shown, or the credit limits indicated with TransUnion.

If you don’t see a specific box that basically says “there’s something wrong with my account status,” you can check a box that says “other,” and indicate to TransUnion that the “over the limit” information is inaccurate or the terms listed are inaccurate.

When you go online to dispute this, you also don’t need to buy another credit report. If you go through that web link that I gave you, transunion.com/investigate, specify that you’re disputing information and you should get access to your credit report free of charge.

I hope this information is helpful to you, and I know how frustrating it can be to deal with these changes in the banking industry. Keep doing the things that you’ve been doing, in terms of being a wise consumer, managing your credit and debt wisely, and begin monitoring your credit on a regular basis. All of those are going to put you in good financial stead, and you’ll find that you will be a valued customer to banks and other credit card issuers if you maintain that great credit rating, as you already have been doing.


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