American Express card holders may soon face a predicament. Holders may soon find their credit card limits reduced. Some card holders are discovering that, if they lower their balance, the credit card company will reduce the credit limit to the amount of the lowered balance. However, if the balance on the card is not reduced, the holders’ interest rate may increase.

To further add to the frustration, if holders have their credit card limits reduced, their debt relative to their available credit will increase. This rate is an essential factor when calculating credit scores. In other words, a decrease in a credit card limit is likely to result in a lowered credit score. Decreased limits also lead to increased minimum payments because of the higher debt to available credit ratio.

Many U.S. banks reduced credit limits for credit card holders at the end of 2008. Credit card limits are expected to keep falling. Even those with good credit are not exempt from the limit reduction.

Credit card companies are reducing card limits to prevent delinquency and the increase in charge-off rates. Charge-offs are loans that the lenders do not believe that the borrower will repay. Many credit card companies are seeing an increase in charge-offs and this number in steadily increasing.
If cardholders discover their credit card limits reduced, they should pay of the balance as soon as they can. They should also try to make payments online before the monthly payment is due in order to reduce debt. If an individual has more than one card, efforts should be focused on the paying off the card with the highest interest rate. Each month, make the minimum payment on each card except for the card with the highest interest rate. For this card, pay off as much as possible each month until the balance is paid. Another option is to consider transferring the balance to a card with a lower rate. However, be aware that many credit cards offer introductory teaser rates and fees when transferring a balance from another card.

Simply cancelling a card is not the optimal solution because the card holder’s credit history will be damaged. If a card is cancelled and the available credit on that card lost, the credit score will be negatively affected. When the credit score is calculated, companies compare the amount of debt with the credit limit on all credit cards.
In order to protect themselves, credit card companies are beginning to make changes that have an effect on their customers. Chase has increased the minimum payment from 2 percent to 5 percent for some holder with larger balances. American Express is trying to get some holders to pay off their balance by the end of April by offering them $300. Capital One has increased new card holder rates.

A primary factor in determining if holders’ credit card limits are reduced is the overall debt compared to available financial resources. Many companies are lowering limits because of the market and its negative impact on consumer credit. Card holders who have large balance are more likely to have their credit card limits reduced. Late and delinquent payments are also a contributing factor to lowered limits. If the card is not used on a regular basis, the limit is more likely to be reduced because a card that is not used often is not profitable for the company. If a card is not being used, the consumer may also have the card closed without notice due to inactivity. Having a credit card account closed can also negatively affect credit scores. Many holders are finding that their credit card limits are being reduced, their minimum payment is increasing, cards are being closed, and their credit score is suffering without warning or advanced notice.