Bankruptcy

Does Your Address Affect Your Credit Limit?

By Chris Kramer

A recent report from msnbc.com suggests that your state of residence could affect your borrowing capability. A California man reportedly received a letter in the mail from one of his creditors informing him that his credit limit had been cut ? simply because he lived in California

Since the economic crisis began more than a year ago, Americans have seen their credit limits slashed for a variety of reasons ? a company?s economic distress, job loss, late payments,filing bankruptcy ? but basing limit cuts on where someone lives seems unnecessary.

How It Happens

If you?re like the man in the article, you?ll receive a letter from your creditor informing you that your limit has been lowered. A call to a customer service representative may reveal the reasons why. But there may be no warning signs.

Generally, creditors cut limits for a variety of reasons:

• Missed or late payments: If you have a history of not getting payments in on time, your card issuer may limit your ability to charge.
• Universal default: If you default on another (unrelated) line of credit, some card issuers may see this as a warning sign and cut your limit. (New credit laws will end this practice in February, 2010)
• Approaching your limit: Ironically, if you begin to approach your credit limit, you may be viewed as a riskier consumer and therefore have your limit cut.
• Your credit score: If your credit report or score reflects risky behavior (missed payments, increased interest rates, other lowered limits), card issuers may cut your limit.
• Financial struggles: As the recent economic situation has illustrated, your limit may be cut simply because your card issuer wants to cut its risk.

The recently introduced Credit Cardholders? Bill of Rights may end some kinds of credit limit lowering, but most of the provisions of that law won?t take effect until 2010.

Is My State at Risk?

To know whether or not to be on the lookout for residence-based credit limit changes, you may want to check out the findings of the Corporation for Enterprise Development, which recently released economic data on all fifty states.

The group?s website includes an interactive map that allows you to view economic indicators for your states and compare it to other states to get an idea of where you fall in the national rankings.

The Lesson: Read Your Mail

Whenever you get mail from a credit card issuer, be sure to read it carefully ? it could have important information about your credit future!

Additional Resources

Credit Cardholders’ Bill of Rights (Summary) (PDF)

Full post as published by The Bankruptcy Blog on September 24, 2009 (boomark / email).