If you’re on the hunt to find a balance transfer credit card that has lower interest rates than your current card, there is something you should consider other besides the rate.
This includes the amount of the credit limits that are offered by the card issuer. According to a Wall Street Journal report, Capital One and Discover are among the first to reexamine how credit limits determined. Card issuers are apparently “seeing signs of deterioration in consumers’ ability to pay their debts but do question how much longer the economic recovery will last.”
Determined to not be left holding the bag when card users run up their cards to their limits, including transferring large balances to their cards, issuers are becoming stingier in allowing for exorbitant credit limits.
Observers of the credit space have long thought that credit card limits are good indicators of lenders’ outlook. The Wall Street Journal stated that during the last financial downturn, card issuers slashed credit limits to avoid incurring new losses.
They eventually loosened their grips on the limits in 2015 to attract more balances and interest income, according to the Wall Street Journal.
What’s spooking card issuers
Capital One and Discover are two credit card issuers whose execs have said they don’t currently see signs of deterioration in consumers’ ability to pay their debts. However, they do question how much longer the economic recovery will last.
Capital One Chief Executive Richard Fairbank said during the company’s last earnings call:
“In so many ways, one can’t help but be struck by…just how good the economy [at] this point is. And in some ways, it almost feels too good to be true.”
The reasons these two card issuers are seen as barometers relates to the various types of customers they serve. For example, Capital One caters to people with low to flat out bad credit scores. It offers a wide array of secured cards to help people like this rebuild their credit.
Discover tends to steer clear of affluent customers, leaving them to the likes of American Express. In response to concerns about being saddled with charged off accounts, Discover is reducing the number of credit card balance transfer offers to consumers it considers higher risk in a ‘nuanced example of tightening’ its lending standards, according to the Journal.
The crack down
Capital One and Discover are monitoring how consumers use their cards’ spending limits. Capital One started dialing back spending limits for new customers a few years ago. Also, it’s put in place more stringent requirements before boosting a cardholder’s credit limit.
Discover has cut back on the number of credit card balance transfer offers to consumers considered to be more risky as far as their credit histories. The move is intended to help it steer clear of people who could transfer a balance to a Discover credit card that would easily max out their spending limits, Discover’s CEO Roger Hochschild told the Journal. Specifically, he said the move is a “nuanced example of tightening.”
Rule Number 1 in credit limits
Discover boasts having many cards that that make for ideal balance transfer choices. As it promotes these offerings, it points out several things to consider before choosing a card.
The first rule is understanding the credit limits.
On its site, Discover notes:
“You can’t transfer more debt than your new card has in available credit. You want to keep your credit utilization ratio at about 30% for all lines of credit, so only move a balance smaller than the credit line on your new card.”
As far as knowing the credit limit on your new card before a balance transfer, Discover states:
“Many companies will accept your inquiry and then charge you a fee for transferring a balance over your credit limit. Other companies may transfer only a portion of the balance up to your credit limit and also charge you the balance transfer fee.”
Don’t give up
Given credit card issuers are considering tightening the belts when it comes to credit lines, there’s a chance that you could be declined when trying to do a balance transfer.
NerdWallet recommends that those who don’t receive immediate approvals contact the issuer of the balance transfer card and ask for a higher limit. The company will factor in your credit score, income and debt-to-income ratio in making a decision.
According to NerdWallet, card issuers can be flexible in cases involving the higher limit being within a few thousand dollars of what you were originally approved for. Do not hesitate to give the card issuer the exact reason you need a higher credit line