Sunday, May 17, 2009

Is Lowering My Credit Card Limit Bad?

It finally happened. Friends have reported this happening to them, but now it has happened to me. One of my credit card companies, Fidelity, has cut my card limit almost in half.

I am not sure what to think about this. Did I need a card limit of $23,000? Will my new limit of $12,000 be enough? Enough for what? Another driveway pave? Unnecessary. A home improvement? I’d rather get a conventional loan or do without the improvement. No more loans whose terms can be changed unilaterally by the credit card companies, thank you very much. Been there. Done that. Would $12,000 be enough to pay for a trip to Australia? No worries. But that’s not how my next trip to Australia will be financed.

By my calculations, which admittedly are extremely simple, I have never, ever made so many purchases on this credit card to warrant even a $12,000 limit. And if an emergency situation arose where I’d be looking for $23,000 in cash, I wouldn’t go to a credit card company for it. I’d go to rainy day savings. Or my IRAs.

Is this going to affect my FICO score? I suppose. But what do I care? I’m not getting a mortgage or buying a car. Or a yacht. How many points on the scale do I slip when I owe nothing anyway?

A friend’s story is different. This person is mired in credit card debt, so cutting the limit put a damper on the possibility of making new purchases. But isn’t that a good thing, if you can’t pay off the purchases you’ve already made? Ah, but we’re all stuck on the treadmill. This is our lifestyle, and nothing in it shall change, even if we have to finance the lifestyle through unsecured loans from credit card companies.

Face it, few of us have assets that anyone, even a loan shark, would accept to secure a loan. It’s not as if we have large diamonds to hock. Our houses? Forget it. Cars? Doubtful, but maybe the used car market is in better shape than the new car business. Objets d’art? We don’t own them. Try to sell a plasma TV for anything like what you paid for it. Yeah, I thought so. Not happening. Maybe on Craigslist you could find someone, but all I see are unrealistic prices and no buyers. Most buyers would rather have the factory warranty, anyway. So, yes, most of us use unsecured loans to raise cash if we don't have other resources.

What happens if six months from now this same credit card company again cuts my limit in half, and I’m down to a $6,000 limit? Still enough to finance a trip to Australia. But taking trips is not what I use this credit card for. I buy gas, I buy groceries, and I go to various stores for random household and hardware items. Do I need even a $6,000 limit for those shopping habits? No. What about my online purchases? Opera tickets? Books? Flower bulbs? Those can add up, but still, about $1,000 would be fine. Make it $2,000 in case I decide on the spur of the moment to fly to California for a weekend.

I don’t need a lot of credit, and that’s the truth. I remember several years ago, arguing with a credit card company that insisted on raising my limit. I had called for some other reason but they were pushing giving me more credit. That was raising the limit to $5,000 or so. They won that round. Now, the credit card companies may think they have won another round, but I disagree. I think I have won. If someone steals my identity now, they can’t get away with $23,000 worth of stuff. Only $12,000.

Thanks, Fidelity. I await the next credit limit reduction with eagerness.

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