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Don't throw out that letter from your credit card company. It may be notifying you of a reeled-in credit line, interest rate hike or even an account closure.
In this recessionary climate, credit card companies across the board are tightening the reins on card holders to minimize their exposure to risk. Such actions could hurt your credit score and, in turn, your ability to get an auto loan, mortgage or even another credit card.
So heading into the holiday shopping season, make sure you're aware of any changes to your credit card terms.
To protect your credit score through these times, keep these points in mind.
Watch fine print
Even if you're not doing anything differently, lenders may be clamping down on your account. That's because credit card companies are re-evaluating their criteria, said Carol Kaplan, a spokeswoman for the American Bankers Association, an industry group.
In a robust economy, for instance, a $15,000 balance may not have triggered any alarms. Today, it may be reason for a higher rate or a lower credit line, Kaplan said.
Other reasons lenders may tweak terms include late payments, partial payments, exceeding credit limits — even if such behavior didn't provoke changes before. Not using your card often enough could also be cause for a change or even prompt the company to close the account.
Up next: New regs
Credit card companies may also be changing terms to gird for new regulations set to be adopted by year's end.
The Federal Reserve is still ironing out the details, but one proposal would ban companies from raising rates on existing balances; hikes could only be applied to future purchases.
Another proposed regulation would prevent companies from punishing card holders for reasons unrelated to their account. Right now, companies can raise rates or lower limits based on information that shows up on credit reports, such as taking out new loans or defaults on other cards — whether or not such activity had an impact on your credit score.
Preventing a change
One way to guard against tougher terms is to keep more than one card. That will give you the option to transfer balances or use other cards if one issuer takes action against you. Checking your credit score periodically to make sure it's clean can also help fend off unwanted changes. It's also important to monitor to prevent identity theft.
On Citigroup Inc.'s financial literacy Web site for consumers (usecreditwisely.com), the company also suggests immediately notifying companies whenever you move so bills aren't late.
Other measures you can take are obvious: Pay your bills on time and whittle down debt as much as possible.
Negotiate better terms
The first step to asking for better terms is to read any mail from your credit card company. Notification of new terms may also be included in your monthly statement.
If your bank hits you with a higher interest rate, call and ask it to reconsider if you think the change is undeserved. Ask the customer service representative if he has the authority to make changes to your terms. If not, ask to speak to a supervisor who does.
If you're not satisfied, you can always get rid of the card. Banks typically let customers pay off balances at their old rates, so long as they shut down the account.
If your account is being closed, think carefully before asking the issuer to re-evaluate the decision. That technically counts as an application for new credit and may end up hurting your credit score.
For those with great credit and low balances, remember that credit card companies are fighting to hold onto you so it may pay to shop around.
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