With Credit Cards, Nice Guys Finish Last

NEW YORK (MainStreet) -- Boy, if the federal government could get a grip on its debt like U.S. credit card users have, the economy would be humming in no time.

According to credit rating agency Transunion, consumers made $72 million more in card payments than they did in card purchases from the first quarter of 2009 through the first quarter of 2010.

Sure, charge-offs are a factor (debt that card companies write off as uncollectible), but Americans are clearly doing a better job handling their credit card debt.

"Many people in the financial services industry believe charge-offs have been the leading factor in declining credit card debt since the start of the recession," says Ezra Becker, vice president of research and consulting at TransUnion. "In fact, some have stated that charge-offs account for the entire change in card balances over the past two to three years. In reality, the dynamic is more complex. Our analysis shows that consumers have made a concerted effort to pay down their credit cards during these uncertain economic times."

Research from ratings agency Experian: (Stock Quote: EXPN) shows that Americans are doing a great job handling their credit card limits. Only 14% of cardholders use at least 50% of their available credit, and another 37% say they generally pay the full balance each month.

But with the economy in peril and credit tight, it is still tricky for some card users to turn that good behavior into higher credit limits. Here’s how to increase your chances of getting an increase on your credit limits:

Know what card issuers look at. Credit card companies take your credit limit seriously. So much, in fact, that they won’t grant you a fatter credit limit unless you jump through a lot of hoops first. By and large, here is what card companies look for:

  • Your yearly household income.
  • Your credit card payment history.
  • Your current credit card balance in relation to your current credit line.
  • Your recent payment amounts in relation to your balance.
  • The debt-to-payment balances of all other debts that you have shown on your credit report.
  • How much available credit you have from all other credit accounts as shown on your credit report.
  • The amount of recent inquiries on your credit bureau report.

Never exceed your spending limit. It may seem natural for cardholders to use a big purchase that would exceed the card’s spending cap as a legitimate excuse to ask for a higher limit, but card companies won’t buy it. Overspending tells the card issuer that you don’t stick to a reasonable budget and you are thus a higher credit risk. That alone will get your limit hike rejected.

Avoid minimum payments. Even one or two minimum payments a year may be enough for a card issuer to deny your credit limit increase. The key is keep paying regularly, and pay as much as you can -- aim for at least twice the minimum payment if you expect to qualify for a limit hike. Also, any late payments will also kill your chances.

Only ask once or twice a year. These days, a request for a higher credit limit will trigger a credit check. So if you’re asking for a hike on a regular basis, the credit check alone is dinging your credit score every time you ask. Keep your requests to once a year, if that.

Threaten to take your business elsewhere. Credit card firms don’t want to give you a high credit limit, but even more than that, they don’t want to lose your business. A quick review of Internet card forums reveals the “I’m leaving” threat seems to work. It goes like this: you call your credit card company and ask for a limit hike. They say no. You respond by saying you’ll quit and get a new card. Now, if your credit rating is solid and you have a good payment history, no card issuer in its right mind will turn you down. But you have to hold their feet to the fire first.

It’s a curious case of credit cards that good behavior is seldom rewarded (after all, it’s the debtors who give card issuers all that revenue from interest charges), but to paraphrase J.F.K., ask not what your credit card company can do for you  -- ask what you can do for your credit card company.

Like it or not, that’s the quickest path to a limit hike.

Are you curious about how your credit score is compiled? Check out MainStreet's in-depth look at who's behind your credit score!

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