Your credit
My credit card’s limit has been lowered. How will that affect me?
Aside from the fact that you won’t be able to borrow as much on your card, a lowered credit limit could result in added fees if you make a purchase that puts you over that amount. Your credit score could also be negatively affected, since your ratio of debt to available credit will go up.
What to do
If you carry a balance on your credit card, don’t let it run higher than 30 percent of your limit. Open all mail from your card company to stay on top of account changes. If your credit limit has been reduced or your interest rate raised, ask your card issuer for a waiver. You might need to go beyond customer service and speak to a manager.
I’m having trouble paying my credit card bill. What should I do?
You’re not alone. Some 35 percent of the respondents in our survey said that they’re concerned about their ability to pay off credit card debt.
What to do
Contact your card issuer right away. Some have payment programs for squeezed borrowers, though others are turning over delinquent accounts to collection agencies faster than in the past.
If you’re paying a high interest rate on your balance, consider transferring it to a lower-rate card. No-fee, zero-percent balance transfer offers are rare, but we found a few at press time. The Pulaski Bank Visa Classic card offered zero percent on transfers for six months with no transfer fee and a fixed 6.5 percent APR after that (though the annual fee is $35). Bank of America Platinum Plus, Discover More, and HSBC Platinum Mastercard all offered zero percent on balance transfers for 12 months but with a 3 percent transfer fee.
Will I be able to borrow against my home equity?
You can still get home equity loans or home equity lines of credit (HELOCs), but you’ll need a higher credit score and more equity in your home than before.
A year ago you could get the best rates with a 680 credit score; now you’ll need at least 720, says Keith Gumbinger, vice president of HSH, a mortgage and loan information company. Some lenders want you to have at least $25,000 of equity in your house, and a loan-to-value ratio of 80 percent is standard. That means if your home is worth $100,000 and you owe $60,000 on your mortgage, you can borrow $20,000 more. Home equity loans are easier to get than HELOCs, because open credit lines are riskier for lenders.
What to do
Shop around. Some larger banks are curtailing loans and charging higher rates. Smaller banks, thrifts, and credit unions may be more willing to lend.
My HELOC is frozen. What can I do?
Falling home values have led banks to cut or freeze the amount of credit available on existing HELOCs. Generally, the terms of such agreements allow them to do that. Even homeowners with excellent credit scores have been affected.
What to do
Show your lender a recent appraisal to prove that your home has held its value. If you’re in the middle of a project and need credit to finish it, explain that to your lender. For example, if you had a $50,000 credit line frozen, ask for $25,000 to complete the project. If that doesn’t work, try another lender.
