Why Your Credit Score May Drop Soon

Some Americans use them for convenience, others by necessity, but almost all of us take credit cards for granted. Yet life in the land of plastic may soon be changing… and not for the better.

There are two reasons why. The first is that as with mortgages, default rates on credit cards are rising. According to Moody’s Investors Service, default rates industry-wide have risen nearly 50% since last year.

Something else on the horizon is 62 pages of proposed new regulations that would help consumers but make credit cards less profitable for banks.

And banks are reacting: by lowering limits, raising rates, even closing inactive accounts. These things mainly affect those with lower credit scores… but they also cause lower credit scores.

How? If your limit is lowered, or a card is canceled, that lowers your available credit and raises your percentage of credit used. Result? Lower credit score.

So what can you do? First, make sure you’ve got an extra card so if one gets canceled or the rate become unreasonable you’ll have options. And if bad things do happen, call the bank. Talk to a supervisor; negotiate a lower rate or better deal.

Bottom line? If you’ve been following the mortgage mess, you already know the story: lenders are losing money so they’re getting tougher. And that means it’s time to clean up your credit, and use as little as possible.

Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.

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