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Could You Get Cut Off From Credit?

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Banks are reducing the number of cards issued and demanding higher credit scores.

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The days when your mailbox is deluged with credit-card offers may be coming to an end. In fact, a recent survey conducted by the Federal Reserve said many banks will be reducing the number of credit cards issued in the future, cutting credit limits and demanding higher credit scores. What can you proactively do to avoid being cut off from credit?

Lowcards.com, a website that tracks credit-card rates, has reported that issuers have reduced limits on 58 million card holders. When times were prospering, credit-card behemoths like JPMorgan Chase (JPM), Citibank (C), and Bank of America (BAC) provided abundant credit, creating an atmosphere of excess. And now that times are tough and the recession has hit, they're cutting back on liability and credit limits, said Bill Hardekopf, the Birmingham, Alabama-based CEO of Lowcards.com.

"We're still in the midst of a credit crunch, and (credit card) delinquencies are sky high," noted Curtis E. Arnold, author of How You Can Profit from Credit Cards and founder of Cardratings.com. It's a perfect storm for credit card issuers who are cracking down on any consumer who seems risky and is late with payments. "Anyone who doesn't have a strong credit rating has a target on their back," he added.

Hardekopf offers three tips for consumers to maintain their credit cards and remain in good standing with major issuers:

1. Pay your bills on time each and every month.

2. Don't exceed your credit limit.

3. In fact, strive to avoid using no more 33% to 50% of your credit maximum to ensure strong credit ratings.

Maintaining a strong credit score is essential for every consumer who doesn't want to be cut off from credit. If a credit card bill is due on November 24, make sure that bill is paid promptly if not early. In fact, a late payment of a day or two can trigger a report to credit rating agencies and lower your credit score.

The Card Act, passed by Congress, that goes into effect in February 2010 is going to change the credit card landscape, explained Arnold. "Even folks with good credit aren't adverse to negative action from credit-card companies," he said. Under the act, credit-card companies will be restricted on raising interest rates and won't be able to spike them on a whim.

Ironically, the consumers who bulked up on credit cards when times were good may also face losing some of them. Not only are major banks penalizing late payers, but banks are canceling cards of dormant users who fail to use the card for six months or so.
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