First HELOC's, now Credit Card Limits are getting reduced! Watch your FICO scores DROP!

Well, now that people are getting their HELOC's rescinded (heard a horror story from my friend of a woman who was in the middle of a full kitchen remodel; totally torn down to studs then found her HELOC was yanked!)

The same friend was telling me that American Express just lowered his credit limit from $25,000 to $8,500! He's had it for 7 years, never been late, always paid it off in full. He called and tried to get it reinstated and they refused.

Just saw an article on it and here's a quote - the bigger (??) issue is what all of this does to your credit score, so take heed:

"Here's how that happens: Let's say a cardholder has a credit limit of $10,000 and a balance on the card of $4,000. The card company worries that large balance may increase the prospects for default, so it lowers the credit line to $5,000.

But in doing that, it completely changes what is known as the credit utilization rate, raising it from 40 percent to 80 percent. That is then factored into the calculation of one's so-called FICO credit score, which measures creditworthiness, according to Craig Watts, a spokesman for FICO-creator Fair Isaac Corp. "

Here's the link to the full article:


I found it interesting that one of the banks that are doing this is Washington Mutual, already known to be pulling HELOC’s.

This situation is troubling on a number of levels. It seems like a fast-moving downward spiral that is going to have far, far reaching effects. e.g., I’m OK with holding my own right now, even holding non-cash flowing properties. But take away any of my credit and I could be in a very bad situation.

BTW, another friend got her $100,000 HELOC “rescinded” by National City Mortgage last week. She’s sick about it, mainly because she knew I had suggested taking it all out in putting it in an interest bearing account, just in case, but she didn’t act. She had another smaller one that she immediately took and put away.

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