The Credit Card Freeze Has Begun — How Could The Dominos Start To Fall?

As I’m writing this credit card issuers are pulling back credit lines on many of their card holders.  The first announcement of this change in your status might arrive in an email which is followed by a letter you’ll receive in the mail notifying you that your line of credit — the difference between what you’ve charged and what you’re limit is — has been altered.  For example if you had $4k left on your card now you suddenly have only $1k left.

If you get an email similar to this  – from any credit card company — do not respond to that email or in any way online — It could be someone “phishing” for information.

Go online to your credit card account and check if your credit limit has indeed been changed — or make a phone call.

Let’s say it’s true and your credit limit has been changed — you still have a thousand dollars left on your limit so what’s the big deal?

The potential “big deal” has to do with how the other credit card companies and the credit reporting agencies are going to react. 

Many people don’t realize that if you go above certain amount of your available credit, let’s say for example 80% –  it changes your status — as far as the credit card issuer is concerned.  

An unexpected change in your line of credit —  by the credit card issuer — can put you over that threshold — even though you never used the credit available, have a great credit rating and pay your bills on time.  

This sudden change in your status  could cause a domino effect with your other credit card issuers, and here’s why:

If you read the fine print in the “cardholder agreement” you’ll more than likely find wording to the effect that any change taking place with any of your other credit issuers can be used as the basis for determining your status — they can raise your interest rate — limit your available credit — or freeze your account altogether. Any of these actions can trigger similar actions by your other credit card issuers.  In other words:  If one does it the others may use that as an excuse to do it too.

And remember:  It may not have been your spending habits that caused this change…

It might have been an across-the-board change affecting millions of other card holders –  all at the same time.  Hence the “domino effect” because of the automatic (more than likely computer programmed) reaction– by your other credit card issuers — that could take place which can affect your ability to use your other credit cards.

What can you do?

Let me tell you what I did recently as a precaution: 

I went through all of my credit card accounts and found I actually had several credit cards with zero balances — some I had never used — or had paid off months or even years  ago. They were still active accounts but  I forgot I had them!  So I got on the phone and cancelled those accounts!  

And here’s why:

Each credit card account you have has a credit limit on it.  If you start adding up the credit limits on accounts —  you’re not using — it adds up to a surprising amount.  The credit reporting agencies have this information about all those credit limits and make it  available to credit card issuers.  

If you don’t use the credit card that credit limit is still active. 

So get rid of it!  Make a call and close the account.  If you’ve got good credit you can probably open it again — if you need to — at a later time.  In fact that’s what several of the credit card issuers said to me:  ”just give us a call and we’ll be happy to reinstate your account”.  

The important thing  is to  lower your outstanding “available credit”  by closing credit card accounts you’ve probably forgotten about — but  you’re other credit card issuers are very aware of — and may be using to determine how they rate your current “status”.

I’m not a financial advisor so what I’m telling in this blog post is nothing more than my opinion… I’m only telling what I think and what I would do.  What you do is strictly up to you — it’s your life and your decision and responsibility.

Just don’t stand by and do nothing and then act surprised when the unexpected occurs. I’ve got a feeling that a lot of unexpected things are going to happen in the days and weeks ahead.  The best thing you can do is to protect yourself by using common sense and taking action when it comes to our personal welfare.

Because in times like these reacting to a situation could mean it’s already too late!

-Bob Baran