Subprime Borrowers Get Hit – Credit Card Limits Lowered
Did you know? Credit card limits lowered in 2017 can hurt subprime borrowers Just Like You!
It’s hard to believe, but access to credit by consumers is reaching a 10-year high. What this means is essentially, more consumers are being granted credit. Even with less-than-perfect scores, in fact, they can get credit cards.
But that doesn’t mean all is well in the land of credit for these consumers.
As more banks are granting credit cards to subprime borrowers in 2017 who have bad FICO scores, consumers are getting cards with lower set limits. Is it still credit right? Wrong, for the most part — and here’s why:
Let’s say you have a score below 600. Immediately, you are considered a subprime borrower, and you’re seen as a risky case. And since 2010, that credit limit has decreased by more than 1,000 dollars for this consumer group.
A lower credit limit often is determined by the number of delinquencies a person has on their credit account. When customers can’t pay even the minimum amount for their credit card, it leads to what is known as a charge-off. These debt collection cases are at their highest since 2009. So to prevent a charge-off case, banks are limiting the credit limit for the cards they issue.
The bad news is that even though this strategy helps banks in the short term, it hurts the consumer in the subprime category. It makes it more difficult for them to get out of debt and to pass into a higher credit category.
Why Credit Card Limits Lowered Lead to Low Scores
Let’s say you are a subprime borrower who has a credit score of 500. You get a bank-issued credit card that allows you a credit limit of $200. Not only does this credit card make it difficult for you to use it for purchases, but it keeps you in a low-score category – even if you make payments on time.
Many credit score platforms determine your credit limit via “credit utilization.” This is the percentage of your credit line you use every month. About a third of your credit score is determined by how much you use up your credit. So, if you are maxing out your credit card every month, you are considered a risky borrower. Your credit gets a little ding every time you reach your credit card limit – and that means your bank will be less likely to increase your credit score over time.
What Can You Do If You Have Credit Card Limits Lowered in 2017?
If you’re in the subprime borrowers category, then there are a few easy tips you can follow to increase both your credit and your limit. Here’s what to consider right now and how to make some changes:
Spend a Fraction: A good way to think of your low-limit credit card is that it is a foundation for building trust with your bank. So don’t use it like you would a regular credit card. Spend $20 on it, and then pay it off. Try this for six months, and then request a credit increase. At any one time, don’t use more than 30% of your limit.
Communicate with Shared Card Users: Many families have a situation in which they share a credit card. So it’s good always to be communicating with one another about purchases. You don’t want to run your bill high and decrease your credit limit by purchases that come as a surprise.
Subprime Borrowers Get Their Credit Limits Increased in 2017 With On Time Payments
Ask for More; your initial credit limit does not have to be your final credit limit. Give it a little time, and then talk to your credit card issuer about an increase. When you call your issuer, consider asking for double your credit limit. The only thing that can happen is that your issuer can say “No.” You have a much better chance of getting your request if you can show how you’ve paid on time consistently and on time while not spending more than 30 percent of your credit limit each month.
Present Facts, Not Emotions: If there is one mistake many subprime borrowers often make it’s that in the emotion of asking for a credit increase, they appeal to emotion. Don’t do that! Don’t tell your issuer that you suddenly are under financial duress or need an increase for your hair salon appointment. They aren’t going to empathize with you. Instead, make a case for why you deserve the credit increase – such as never missing a payment.
Finally, don’t rule out a secured credit card. These are credit cards issued to subprime borrowers who have exceptionally bad credit. Used correctly, they can help you gain credit. The way a secured credit card works is that you put a deposit on the card of up to $3,000. In the case of a missed payment on your secured card, the issuer will deduct what you owe from the deposit you’ve put on the card. Just don’t miss a payment!
There is Hope for Subprime Borrowers? Are You Ready to Increase Your Credit Score and Limit?
For subprime borrowers, there is good news and hope. It may take a little longer than borrowers with good credit, but over time you can get the credit score you want. What is so devastating about a low credit limit is that often keeps you in the subprime category if you are spending more than 30 percent of your credit limit each month.
Credit Card Limits Lowered in 2017? – Subprime Borrowers can Take Action
So keep these tips in mind as you build your credit. Don’t be afraid to ask for a higher limit — but just make sure you are doing everything necessary to prove to your credit card issuer that you are responsible. Over time, you’ll be able to grow into a higher credit limit category and increase your spending power. Think of right now as the time to build your foundation and to start proving your case for credit.
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