Credit Crunch

What Can I Do?

Can a Credit card company close your account on you, even if your payments have been on time and your account is in good standing? Can "moving credit card balances" around onto other credit cards be bad for your "credit history"?

Further Details: I have several credit cards in which there are balances owed. Over the past year or so I have used balance transfer promotions to "move" balances owed around onto other cards to receive better promotional interest rates.

Recently I received a call from one of my current cards that I had just "cleared" the balance off of it (by using a balance transfer program to another credit card.) I was told it was just a routine call to ask some questions about current status of income. I was also asked if I had a "plan" to pay off the credit card debt. I didn't have an answer for that other than, we pay a little by little, and when we can pay more we do. (Income on a commission can vary from month to month.) Then I was told "we (the credit card company) are closing your account. Your debt to income ratio is too high.)

Thank you for any answers you can obtain.
Julie A.

The Book to Help

Read Get Out of Debt, Stay Out of Debt, and Start Living Prosperously, by Jerrold Mundis, and do everything he says.

Credit Card Shuffle Danger

Yes, moving from credit card to credit card can hurt your credit rating. For example, you have a credit card (#1) with a $3000 limit at 12%, you get an offer for a card (#2) with a $5000 limit at 9% so you transfer the balance of $2500 over leaving you $2500 to charge on the new card.

All goes fine, you charge and you pay on time and have a $4000 balance at 9%. Then you get an offer (#3) for 7% interest if you transfer the $4000 balance, and they will give you a credit line of $8000. You will be saving interest so you transfer the balance over.

To you, what you have is one active credit card with a $4000 balance, $8000 limit and 7% interest. You always pay on time. You decide to purchase a home. The bank runs a credit check and here is what they see:

Credit Card #1 $3000 limit
Credit Card #2 $5000 limit
Credit Card #3 $8000 limit
Credit Card #3 $4000 balance due

So you can see that to the bank you have a potential debt $16,000 although you only actually owe $4,000. They consider this available debt and means you could easily use it and not be able to pay them.

I know this for a fact because I was always shopping for a better interest deal and although we always paid ahead and extra, those accounts were still there to a lender. I ran a credit report for my husband and myself and contacted every "'inactive" account listed and requested they close the account. They all did this and our reports reflect "closed at customer's request".

We became debt free in June 2000 and I pray we never get back in debt for anything again.

A Problem Becomes a Blessing

This happened to me and at the time I thought it was the worst thing that could happen. Oh what a blessing it was! I called the company later that year even though the account was closed and asked for a hardship program as I did with the other credit cards. They agreed, lowered my payment, and closed my accounts. Now I have money left at the end of the month. I don't use credit and since they closed the accounts, I can't be tempted. And now I pay cash for what I need. Oh, what a feeling!

Helpful Hints to the Problem

The answer, as you've unfortunately found out, is "Yes, it can." A credit card company can close your account based on the status of not just their account, but also any other competing accounts you may have. A creditor may reduce your credit line, or close the account, if, for example, one or more other cards are, or have been, delinquent. Even if you are completely up to date with everything, but are overextended in terms of total amount of credit vs. income, the credit card company may close your account, in order to minimize what they perceive to be too great a risk, or exposure to potential loss, on their part.

Your second question, "Can moving credit card balances around onto other credit cards be bad for your credit history?" in actuality may contain the seeds for your problem's solution. At this point, with this account having been closed by the credit grantor, they may additionally in the near future also raise your APR, sometimes to an outrageous rate, as they no longer want your business. So, if that occurs, you should try to transfer as much of that balance to a lower rate card as soon as you can. And when that balance is zero, by all means, write and close that account because you don't need them either. In a situation like this, transferring balances can help, not hurt, your credit history.

Also, very definitely, you should try to develop a payoff plan for each one of your accounts. Believe me, I know by my own experience, "little by little" in an unscheduled fashion does not work. Regularly sitting down, gathering every bill, creating and maintaining a list, or spreadsheet, with every balance, amount paid, due date, payment address, and APR, is extremely important, as it helps you keep track of where you are at any given moment.

Paying on time, every month, is extremely important, and helps to restore a credit history that will otherwise make your creditors edgy. Another tactic to calm your creditors is to lower your balance/credit line ratio. Having a balance of less than 50% of your total credit line is a good indication to them or actually to their credit scoring algorithms that you are not overcharging. Again, transferring balances to help bring this about is a big help.

Once you are totally up to date with everyone, you have a great deal more clout in securing lower rates, and even opening up a new card becomes an option. Finally, try to stop charging, make regular bill paying a priority, and keep plugging away. It's not easy, and it can take years, but it's worth it!

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