Like many of you, I have received notifications that my credit limits have been cut on my credit cards. While this may seem to have little to no impact on me financially, I have learned there is an inherent credit score impact with these credit card company credit cuts.
Let’s take a look at how this is effecting small businesses negatively and how it hurts the consumer. I also have some ideas on how to deal with this by pushing business to smaller, more local institutions that may alleviate your pain and also the pain that these banks created and continue to create in our economy.
Small business owners: Most small businesses depend on some level of revolving credit to help fund needed short term investments for cash flow and sales. Like many small businesses, as a consultant, I depend on some level of revolving credit to help float the expenses it takes to do business. Recently, American Express sent me a letter stating that they are imposing a ridiculously short limit on my Amex Business credit card. The limit imposed was not based on prior issues with me paying my bills, my credit score or any substantiated risk and I had no balance on the card at that time. I do use this card for travel and expenses and the limit imposed was smaller than what I typically need to deal with the short term expenses relate to my work. American Express cut me off at the knees with no recourse on my side.
So, I moved my credit needs to Chase. I began using a card that had a small, but manageable balance, however, I have not used that card in several months. One week after I charged a plane ticket and rental car to my Chase Visa, I got a letter stating they had cut my credit limit to $50.00 below the existing balance. Ouch. I decided to look at my other options only to learn that three other card vendors had canceled my inactive accounts (the ones with no balance) and one other had put a limit at exactly the balance I had.
Now, in this economy, a consultant like myself has a hard time closing deals just as unemployed folks are having a tough time getting new jobs, so reserves are very low and I am on a bootstrap budget. Short-term credit is critical to me being able to take on projects that have a 30-to 60 day payout window.
And yes, this whole process has ended up effecting my personal credit score. When I applied for another business card with another bank, I was told that I had too many (the number is 3) revolving credit lines that are “maxed out.” So, by Chase, American Express and HSBC putting unwarranted caps on my credit cards, they hurt my credit score by making it appear that I have maxed out all my available credit lines.
With no history of late or non-payments and a long history of being a good credit consumer, I am put between a rock and a hard place by the very companies that caused this economic crisis.
So, I chose to turn to my local bank and a local credit union. I was able to speak to a real person with the local bank I work with for my business checking. They looked beyond the aggregated credit report and realized that I was not only a good risk for them, but a great opportunity. They were able to provide me with a replacement credit line at a fixed rate and with no fees and it took no fighting or humiliating excuses on my part.
Next, I went to my personal credit union and asked them if they were planning to do any blanket credit cuts, rate hikes or new fees. The answer was no and they worked out solutions for me that replaced the Amex, Chase and HSBC services I used to depend on at a lower cost and without predatory terms.
My credit is still hurt by my willingness to do business with American Express, Chase and HSBC, but I can fix that over time. I can guarantee you that I will never consider the “too big to fail” banks as a source for any future financial services and I will stick with my local banks that actually care about the impact of their policies.
Here are some links that may help you if you need to make some changes in your banking choices:
- National Credit Union Directory
- Know your rights and the laws
- Government Managed Free Credit Reports (The FTC site, not a scam)
~DK
