Tip #28: Contact your banks and ask credit
limits to be reduced.
If your credit risk rating is
poor, and especially if it has taken a beating lately due to
non-payments or other problems, you can ask that your bank
reduce the credit limits on your credit cards, credit lines,
and other debts. You should do this if:
1) You can pay off at least 50%
of your debt loads as they are readjusted. For
example, if you have a credit limit of $5000 on your credit
card and get it reduced to $2500, you should make sure that
you can leave a balance of $1250 or less. If you owe
$4000 and have no way of repaying it, getting your credit
limit reduced can actually hurt you. On the other
hand, if you need to get a larger loan and can pay off your
credit card in full and reduce your limit to $2500, you may
be able to improve your credit score in this way.
2) You have lots of credit. If
you have several types of debts and credit accounts - lines
of credit, credit cards, store charge cards, a mortgage, a
car loan, and a personal line of credit - you may be close
to overextending your credit, especially if each of these
accounts is fairly large. You can’t always close down
your accounts - especially if you are still paying your
debts off - but reducing the limit may make you eligible for
a loan should you need it.
3) You have some credit but you
don’t want to close your accounts entirely because you have
not had credit for very long. Sometimes, if you have
several types of credit, it is not wise to close them, even
if you can, since lenders like to see long-term
relationships with lenders. Reducing the limits can
make monthly payments more affordable and can actually give
you a bigger credit boost than closing long-standing credit
accounts.
4) You will not be taking out a
loan very soon. In the short term, reducing your
credit limits may actually lower your credit rating because
your balances will make up a larger portion of a smaller
credit, but in the long run smaller charge accounts will
actually boost your credit score by making repayment of
loans easier and by making you further from overextending
your credit.
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