Re: Credit card paydown and credit limit

>I just made a rather large ($8,000.00) payment on my credit card, which
>amounts to about 50% of the balance.   Immediately after making the payment,
>the credit card company reduced my credit limit by the same amount as the
>payment.  The card is now maxxed out... again!   

I don't think they can reduce your credit limit AND THEN HIT YOU
WITH AN OVERLIMIT CHARGE because you're now overlimit again.  It
doesn't sound like they did that.  Tricker would be having a balance
of $15,800.00, interest comes to $198.00, they reduced your limit
to $8,000.00, and before they told you about it, you charged $1.00,
which wouldn't have put you overlimit without the limit reduction
which you didn't know about.

>They said that this was due
>to what they "found" on my credit report.   I knew my rating was mediocre,
>at least in part due to the fact that I was carrying high revolving credit
>balances.

It's not unreasonable for them to review credit ratings of cardholders
who have maxxed out their card (or went over the limit).  It may
take a while before they get around to doing this.  How long was
the card maxxed out?  Perhaps the payment amount and credit reduction
were a coincidence.

>So, wondering out loud:
>
>- Is this legal?  I know they can, or can not, issue credit to anyone they
>want, but they "nicked" my credit limit close to $8,000.00!

They can reduce your limit to $0, and prevent you from making any
more charges, ever.  If your agreement says they can demand full
payment immediately, they can do that.  Otherwise they have to
follow their own rules about how fast they can make you pay off the
balance.

DON'T give them an excuse to demand full payment immediately.  They
might reserve the right to do that if you are late on a payment or
fail to pay minimum due or go overlimit.

The bank doesn't have to have a reason related to YOU, either.  For
example, if the bank thinks God is passing judgement on California
and it's becoming Hell in a Handbasket, they could cut all the
credit limits in California in half.  And they don't have to say
why.  (See also:  Farmer's Insurance quitting writing homeowner's
insurance in Texas due to an argument between them and Texas insurance
regulators.  They refused to renew any policies (including mine).
The disagreement is settled and they are writing insurance, modified
in terms, again.  But I doubt they'd let you pay cash with the new
$20 bills.  They (the bills) look moldy.  And the last thing Farmer's
wants to insure is something likely to result in a mold claim.)

>- Legal or no, do I have any recourse?

Change banks.  If you get a better interest rate on the new account,
consider using a balance transfer (watch the fees, though).  And
try to pay down your debt load some more.  If you get a higher
interest rate, don't do a balance transfer, pay minimum on both
cards, and then pay off the highest-rate card first with money you
can afford to use to pay down the balance.

>- Is it typical for credit card companies to penalize card-holders for
>catching up on their balances?

I don't know.  I think this is the first case I've heard of it
happening, although I don't try to keep track of these.

>- Pursuant to the above, how "bad" does one's credit have to be before the
>card companies reduce our credit limit the amount of the paydown???

I'm not sure.  I was recently notified by one of my credit cards that
they had increased my credit limit "by accident" and they had reduced
it back to where it was.  Since I was nowhere near the limit and hope
never to be near it, I didn't care.

Related bad credit queston:  Customer C stiffs store owner S for
$5 when customer C files for bankruptcy and the debt is discharged.
The store owner S refuses to do any business with C (even for cash),
allow him in the store, make change, or have anything to do with
him.  40 years later, store owner S is still doing this.  Is there
anything illegal about this?  (The store has competition:  it's not
like it is the only grocery store in 50 miles or a regulated utility
or anything like that.) Bankruptcies expire off of credit reports
after a certain period of time, but store owner S doesn't use credit
reports for this:  he just has a long memory of people who refused
to pay HIM for whatever reason, and vows never to do business with
them again.  Yes, S would have made a thousand times that $5 he
lost in profit on transactions he refused to do with C, and he knows
it, and doesn't care.

                                        Gordon L. Burditt