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Recession ended easy credit limit increases

Even good payment history doesn't win any credit favors

By

Credit Care
'Credit Care' columnist Kim McGrigg
Kim McGrigg is Community Manager for Money Management International, where she provides personal finance education information to consumers.

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Question for the CreditCards.com expert Dear Credit Care,
Hello, I am a professor at a major state university, with a corresponding yearly salary. I applied for and received a major bank credit card, but with a credit limit of $500. They refused to increase my limit for a long time, claiming I had "obligations that exceeded my income." I have never had debt on any of my other cards (I have two or three) -- I have always paid them on time and have a very good credit rating from Experian. However, I was just told today by an account executive that they will only increase my limit to $1,000 because I have other credit cards that I could "theoretically" max out and not be able to pay. This is despite the fact that I have never carried debt on my cards, nor have I come anywhere even close to a maximum balance on, for example, my $27,000-limit MasterCard. My question is: Are pretty much all credit card companies determining the credit limits this way now? I find it hard to believe that they refuse to look at customers on a case-by-case basis. Thank you for your time and help. -- Lisa

Answer for the CreditCards.com expert Dear Lisa,
Those of us who used credit when it was very loose find it difficult to believe that credit is as tight as it is now. Gone are the days when people without adequate proof of income were being approved for mortgages of hundreds of thousands of dollars. What happened in the intervening years was a major financial disaster that caused all creditors to rethink their qualifications for extending credit.         

The credit environment is beginning to loosen slowly. However, many creditors are still hesitant to extend credit when they perceive potential for high risk. From your point of view, the potential to max out your available credit on your other credit cards seems ludicrous because you have no history of this, and you know you have no intention of doing so. The creditor, on the other hand, sees the readily available credit that you could tap to overextend yourself and is not willing to take the risk that you will.

In fact, it is remarkable, and most likely due to your excellent credit history, that your limits have not been decreased by your existing card issuers. Many issuers lowered credit limits to lessen their exposure to default even for customers with sterling payment records.

My question for you is why do you want another credit card with a large credit limit if you do not ever charge even close to the maximum credit limit on your current cards and never carry a balance? With $27,000 of credit on only one of your credit cards, you already have access to more credit than the typical credit card user.

If you are opening new credit to improve your credit score, the credit limit on the card should not prevent your from reaching that goal. On the other hand, if you believe you will need access to additional credit for an upcoming large purchase, you might consider a different loan product.

Handle your credit with care!

See related: Help! My bank keeps cutting my credit limit

Kim McGrigg is the community manager for Money Management International, the largest nonprofit, full-service credit counseling agency in the United States. You can find more money management advice on Blogging for Change and MMI's Facebook page.

Credit Care answers a question about a debt or credit issue from a CreditCards.com reader each week. Send your question to Credit Care.

Published: April 4, 2011


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