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Credit Card Companies Beat At Their Own Game

November 22, 2009

Just had a long time friend call and we discussed an ever-growing credit problem that is almost completely out of the consumers control… Credit card limits being cut back when a large payment to the principal (balance) is made.  We see this with excellent credit users as much as credit users that are working on making their credit better.  It has even happened to us.  When it did I pulled my credit to see if there was something wrong.  Yah, my balances we a little higher than I wanted so that was probably it.  I am also a credit user (not abuser) but I use my credit for everything and pay a lot of it back each month.  Why should you care if your credit limit is cut?  If you are like me and you do want to have good credit, you have to use it.  But if you use it, to have the highest credit scores, you should keep your balances 45% or lower of your total limits.  If you do this on all your cards you will have good credit (if you pay with in 30 days each month.)  Well if you are going along and keeping your cards nice and low and the credit card companies all come in and cut your credit limits back and you go over 50% loan to limit. Boom yours scores drop.  But we have to get there first most people owe more than 50% , so many have been hurt by this economy just to have the credit card companies increase their rates 5-15% just because.  – So how do you keep the card companies from lowering your limit?  Well if you are not on the market for new credit but you need to use credit due to the economy:

  • Keep your cards within a few hundred dollars of the limit and use it for things like groceries or gas. 
  • The cash you did not spend on these things, put it in a savings account and in a couple of months when it is time to pay those credit card bills, look at the one with the highest interest rate and make the payment like you normally would then take the money from savings say $500.00 or so and pay it down, not off! But down. (Only if you will not need the savings for a rainy day)
  • Now watch that card for a couple of months while still saving your cash again. If you do not get a notice your limit is reduced because you paid off a big chunk you are probably ok, paying off that card without them lowering your credit limit. 
  • To be sure, make another purchase on that card like a tank of gas and wait another month. 
  • If you have been able to save up enough money to pay the card in full by this point, don’t quite yet. 
  • Make another big payment and pay it down to with in $100.00 of the payoff.
  • Wait another month and see what happens. 
  • If they do, lower the limit on the card, I like to punish them by only making the min. payment while trying another card instead. 
  • Although you are the one really suffering because of this, it is better in the long run to have more credit available to you then you are using. 
  • So keep trying until you find a card that does not do this to you. 
  • If you get an offer with a lower rate for the card that is 5% or lower for balance transfers, pay off the card immediately and wait until it shows a zero balance on your online account. 
  • The day it goes to zero, make two balance transfers to your next 2 highest interest rate cards. 
  • So if one card lowers your credit limit, the other one might not. 
  • Here is the trick when you make a principal reduction (pay down the balance) payment like this the credit company may pull your credit to see how you are doing on your other cards (oh yah they can) if they see the one paid off (the balance transfers may not show yet) or the other card you just paid down they may not lower your limit. 
  •  But on those cards you just made balance transfers to; do NOT pay them down by more than 50% of the limit this time. 
  • Also don’t do the balance transfer on the low-interest card to close to the cards limit there is usually a one time fee and it could take you over the limit and mess up that nice new low-interest rate. 
  • You should not have a payment on this card for the next month. 🙂 So that is great and the two cards you paid down will be much lower payments too. 
  • Make sure you are keeping the extra money you are saving in savings either for a rainy day or your next big payoff. 
  • Do not be a day late on any of these cards and remember they will not process your payment on the weekends. 
  • But don’t pay them too early either use their money as long as possible while saving your own earning some interest in your saving.
  • Don’t get to close to your limits at any time, when the interest charge processes once a month it is usually added to the principal balance on your card and can though you over the limit by a few dollars and you could be charged $40 or more for that, now you are over the limit and to get back on track have to almost double your payment.  It just goes to the credit card company and does not pay down your debt any further. 
  • Keep your money working for you and not for them. 
  • What to do with that paid off credit card. DON’T CLOSE IT! 
  • Use it every month to buy a tank of gas or some groceries, and pay it off monthly.  You will not pay interest on most cards this way. 
  • So for an average of 28 days a month you get to use their money for well, free. 
  • That is the goal folks.  Pay them off use them when you can pay them in full each month put the money you would have spent on gas in savings earn 1-2% on it and then pay off your card. 
  • You now just built your credit score, used the banks money and make 2% doing it. 
  • Beat them at their own game but just don’t get trapped. 

Its my goal and I hope you make it yours too.

Be Well!

-Don’t just take my word for it, these are just overall techniques you have to read the fine print on all your cards and offers they send you to make the best choices for you.  Some people are way more aggressive with this tactic and do very well financially.  But thats another story.  Let’s just get out of debt first.

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