I had attained a credit score right around 700. Within the past 3-4 months, mostly due to COVID-19, I had to take creditors up on their offer to forego a few payments.
Suddenly, I had 2 of my major creditor cards reduce my credit line (one went from $21,600 to $8,900, the other went from $24,000 down to less than 10K). Obviously, this threw my utilization percentage sky high and dropped my credit score to 602. I now am struggling to try to get that down to less than 30-40%.
Based on my scenario above, can you recommend the best possible way to consolidate these cards and when will I be able to ask for an increase in my credit limit on these cards?
Thank you so much.
Thank you for sending me your question.
The reduction in credit limits can be due to several reasons, from requesting the payment holiday to the lenders wanting to reduce their overall risk on their portfolio.
While it is unfortunate that this happened, it could also occur on any given day.
Credit limits are not permanent and may be fluid. You will find that when you read the cardholder agreement, you entered with the creditor, that the lender acted within the terms. I would honestly be shocked if this was the once in ten thousand times they screwed up.
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I might give lenders a lot of grief, but the original creditors typically do an excellent job of abiding by the contract’s terms because they wrote it.
So this leads us into the second issue, carrying balances. It’s not the limit reduction that’s hurting you but the fact you are carrying debt on cards that you cannot pay off.
If you are looking for a way to pay off the cards at a lower interest rate and you’d be okay if the cards were closed, then look at a credit counseling program. In a credit counseling program, the non-profit agency has existing terms established with the major creditors. Your interest rate will be reduced, and you will make one payment to the credit counseling group. That will feel like a consolidation.
You could try to apply for a debt consolidation loan, but the interest rates will be high.
As far as what you can do to get your creditors to increase the credit limits again, the only power you over them is to ask for an increase. It is entirely up to whatever the internal business process will grant. Nobody outside of the creditor has any power over them to raise your limit.
One issue to keep in mind is that while you are in a rush to pay down the balances, don’t forget to direct some of your extra money each month to a savings account. I’ve watched far too many people over the years get in a frantic hurry to pay off the debt that when an unexpected expense arrives, it lands back on a credit card and erodes any progress made.