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Answering Your Credit Questions


I've been reading quite a bit lately about credit card companies that will decrease a credit limit without prior notice. (They will mail you a notice on the same day as the change, rendering it received about a week later, too late to protect yourself). Apparently they can do this at any time and for any reason, such as a balance on another card, your FICO score takes a temporary dip because of an inquiry, etc. According to some articles and consumer complaints, limits have been lowered enough to CAUSE the consumer to be over the new limit, racking up fees. Is this legal?

Also, I never carry a balance and pay my bills in full each month. Yet, if I were to charge $1000 on a $5000 credit line, it could be lowered at any time to $500. My research indicates that limits are typically lowered to 10% of the original limits. How safe is it to really use a card these days?

PS--I checked with two of my CC companies-Capital One and WAMU, and BOTH engage in this practice. --Mimi, PA

Mimi - You got it! The big 'secret' is that credit is a very unregulated business and though there are some great personal finance advocates pushing Congress right now to make some changes (check out my buds at consumeraction.org), the truth is that "fixed" doesn't mean fixed and the fine print can cost you big time these days. The best thing to do is to do what you're doing - shop well for a card/bank and be very familiar with bank policies. Also, be ready to jump ship should a current bank or lender start hitting you with obnoxious, this-side-of-legal, fees. There are many banks out there that have much more customer-friendly policies -- see what's out there at Bankrate.com and Interest.com. --Carmen


I am currently paying down credit card debt. I have one through a credit counselor management program the one with the highest balance. The other two not so high balances I settled. My question is how bad does it look on your credit report to have settled? -–Mike, MO

Mike - It doesn't look good to settle, but it looks worse to ignore them completely. You did what you probably had to do and as long as you're on top of things from now on, your credit score will go up over time. --Carmen


Hi Carmen: We bought a house three years ago with 5% down (which we borrowed). We were able to pay the mortgage but it was a little bit of a struggle at times so we got an equity loan (at a ridiculous rate) to help.

Two years ago my husband was in a serious accident and was out of work for three months. After that everything just got worse. We racked up the credit cards to the max. A few months ago my husband's job informed him that they were going to cut the overtime at their location. This was devastating to us because his overtime was more than half his check. We struggled to keep our heads up but after consulting with our lawyer, we decided to sell the house and go bankrupt.

We are currently three months behind in most of our bills and trying to sell our house with a short sale. Our lawyer claims we can live in the house for a few months before we have to leave so we are trying to keep our heads up and do whatever we need to make this as least painful as possible.

Do have any advice that you can share with me? I would greatly appreciate it. Thank you! --Maria, NJ

Maria - This is a horrible situation--know that you are far from alone. Head to the non-profit (read: not after your money) folks at the National Federation of Credit Counseling and find a credit counselor near you (you can do a zip-code search) through their website: www.NFCC.org. Let me know if and how they help. --Carmen