What happens when the bank reduces your line of credit due to no fault of your own?
Well, you would think that it would be fair if it didn?t affect you. After all, if you have been timely with your payments and you have kept your balance low and the bank just arbitrarily came along and reduced your line of credit without your consent you would think that it shouldn?t affect you.
But it does.
Your credit score can plummet 30 to 50 points or more. This is because of the ever-important debt to available credit ratio. For example if you owed $5000. with a credit line of $30000.00 your score would remain high because you would only be using about 17% of your credit line.
But if the bank decided to reduce your credit line to $7500 you would then be in debt to a whopping 65% of your credit line and your credit score would suffer dramatically potentially causing you to be denied credit or charged a higher interest rate. And all because of the ?market conditions? of the bank.
Right now the National Association of Realtors has asked the Fair Isaac Corporation to look into this matter and revise it in some way to protect those good borrowers.
Read the whole store at the LA Times.