Credit Limit - with secret "real limit" ceiling that is less?

[SecretAgentWoman]

http://www.debt-consolidation-credit-repair-service.com/forums/showthread.php?p=767223

This thread made me think.

Say you have a $10k CC - but if you charge more thank $5k you are automatically considered high risk and am automatically charged the "Universal Default" rate instead of the rate you signed up for...

So, really, you only have a $5k limit.

We talk about utilization rates all the time. If you have high utilization, it works against you score wise. So, really...if you have $ABC limit you should think of it really only being $XYZ limit.

When the card companies issue you the limit, they don't actually want you to use it....

Sorry, thinking out loud.

[mspzcpmom]

You are a mind reader. I was thinking the same thing in the car today. Why are they giving you a $10K credit limit when they will raise your rates after your reach a much lower amount.

[LNY]

Not everyone with a $10k limit is "automatically" ratejacked or considered high-risk when they hit $5k. What they do is based on your history, your recent behavior and what they consider to be certain risk factors. So it's a big generalization to assume that because it happens to a few people, everyone with a $10k limit is capped at $5k and no one will be able to use their full CL.

[cavazos007]

Not everyone with a $10k limit is "automatically" ratejacked or considered high-risk when they hit $5k. What they do is based on your history, your recent behavior and what they consider to be certain risk factors. So it's a big generalization to assume that because it happens to a few people, everyone with a $10k limit is capped at $5k and no one will be able to use their full CL.

THANK YOU MY LOVE LNY...My thoughts exactly...Where have you been dear...

[SecretAgentWoman]

Not everyone with a $10k limit is "automatically" ratejacked or considered high-risk when they hit $5k. What they do is based on your history, your recent behavior and what they consider to be certain risk factors. So it's a big generalization to assume that because it happens to a few people, everyone with a $10k limit is capped at $5k and no one will be able to use their full CL.

That doesn't explain why they gave that person the $10k limit in the first place, if they are only comfortable with them spending $5k.

So, do you call them up before a big purchase and say "do you trust me? do you really really trust me?" Because it's still a secret, undisclosed "real" credit limit that only they seem to be privy to, and you have no idea if you are part of the club or have been secretly shunned...

[curlytop]

I'm confused. Is this in the card terms of agreement?

[LNY]

That doesn't explain why they gave that person the $10k limit in the first place, if they are only comfortable with them spending $5k.

Because the circumstances/behavior/future-risk factors may have changed since the $10k limit was originally given.

[direred]

There's also a difference in being willing to allow someone to charge 10k -- and being willing to allow someone to carry a balance of 10k.

[Diehard]

Hi everyone:

Could it be that although you have a $10000 CL, and you use more than $5000 your utilization goes above 30%. I thought we are supposed to strive for low utilizaton. I think this is what the creditors and FICO looks at when calculating your score, and considering whether or not we are a high credit risk. Once they review your CR and they see past history of lates, or delinquencies this alarms them as you might or might not be a risk with such a large amount of utilization. Should they take a chance that we won't mess up, or should they just spank our hands a little, with the default rate, so that you don't go above 30% utilization ever again.

Just brainstorming.

Diehard

[LNY]

They do account reviews, and monitor your behavior. If they see something like sudden skyrocketing in util across the board, or a huge score decrease, or a bunch of missed payments with other creditors, they may assume you're in trouble... especially if your history with them and/or others shows a past tendency to default. So they'll take action to stem what they feel may be their own losses. Decreasing your limit is one step, the dreaded universal default is another.

None of this is a "secret." They can change your terms if they wish (remember the fine print is rarely in your favor).

[Flyingifr]

That doesn't explain why they gave that person the $10k limit in the first place, if they are only comfortable with them spending $5k.

So, do you call them up before a big purchase and say "do you trust me? do you really really trust me?" Because it's still a secret, undisclosed "real" credit limit that only they seem to be privy to, and you have no idea if you are part of the club or have been secretly shunned...

In my profession as an accountant I tend to look at the worm's eye view of the world, so try this reasoning out (it's your friendly credit card issuer speaking to you):

"If you are dumb enough to use more than 50% of your line, we will rate jack you because we can and we earn a lot more interest on a balance that is high than a balance that is low and can be easily paid off. We know you can afford $350 a month in payments. Say that's the payment at the lowest interest rate on a $5500 balance. Well.... at the 6% APR that comes to $27.50 in interest and $322.50 in debt reduction. When we rate jack you to 30% APR it's $137.50 in interest and $212.50 in debt reduction."