Welcome to the inaugural edition of our newest blogging series, “Ask the Experts.” Every week from now on, we’ll be discussing one of your questions, so if there’s something you want to know about credit cards, the banking industry or personal finance then send us an email . If you’re lucky, it just might end up here. (If you’re unlucky, we’ll probably reply anyway, because we’re cool like that.)
This week’s question comes from Adam Alcott, who asks:
That’s some harsh language, Adam, but we feel your pain. There’s nothing worse than getting approved for a new credit card and finding out that your spending limit is lower than the doorknob on Tom Cruise’s house. If you need to make a lot of payments on your card, a low limit can be infuriating. It’s enough to make you wonder why you even applied for the card in the first place. Luckily, we’re here to help.
There are a few reasons why your credit issuer might have crimped the limit on your new card. Is the first time you’ve had a credit card in your name? Banks always limit the amount that you can spend on your first card to a few thousand dollars. Since they have no way of knowing if you’re likely to pay your bills, giving you a low limit is the best way to ensure that you won’t spend yourself into debt. It doesn’t matter if you’re a grocery store clerk or a Manhattan lawyer – if you don’t have a credit history, you just won’t be able to run wild with a credit card.
On the other hand, maybe you’ve been using credit for a while but your credit score isn’t very high. If you’ve had trouble paying your bills, car loan or mortgage on time, card companies will be hesitant to grant you a higher limit. These days, even a FICO score of 750 doesn’t guarantee that you’ll qualify for an “excellent credit” credit card. If your score is lower than that, then you should expect a low initial limit on any card you’re issued.
You might also find your spending restricted if this is the first card you’ve opened with the company. Unfortunately, customer loyalty doesn’t transfer. You might enjoy a $10,000 limit on the Chase card that you’ve had for five years, but don’t be surprised if American Express lowers the bar to $500 when you open an account with them.
Of course, it’s always possible that your card issuer simply wasn’t thinking when they set your spending limit. If you’ve got a decent credit score, are current on all of your loan payments and have been a loyal customer for years, you might simply be a victim of thoughtlessness. Try calling your card issuer and asking that your spending limit be raised. If you state your case clearly and politely, they just might oblige.
In any event, a low credit score isn’t a death sentence. Banks are doing everything they can to limit their losses in this economy, and part of that means lowering the spending limits on new cards until the customer can prove they’re worth the risk. If you get stuck with a small spending limit, just keep your chin up and use the card responsibly. In a few months, you’ll qualify for a raise.
That does it for this week’s Ask the Experts. We hope you had as much fun reading the blog – especially you, Adam – as we did writing it. If you’ve got something on your mind that you’d like us to discuss next week, then let us know. Until then, good luck and happy spending!