It seems like a logical step. You say to yourself, “I want to fix my credit, so I will pay off some of my credit card debt.” You take your savings and apply it to your balance. You sit back and wait for your credit score to go up. It’s guaranteed, right? Not always.
According to ABC News with the collapse of the economy, credit has been more difficult to come by, and banks are feeling the pressure of the easy credit they once handed out freely to their customers. Well, it has now become the customers who are feeling the pressure. Many people have experienced what is called the “follow me down” phenomenon while attempting to fix their credit. When a customer pays down his balance, “follow me down” reacts by decreasing their card’s spending limit. While paying down debt should help this customer’s credit score, the result of the phenomenon is a credit score decrease due to the cut in the credit card’s spending limit. Providers like Chase and Citibank have been cited by consumers in recent months for taking part in this practice.
Paying off debt should not have a negative impact on your credit score. Avoid the “follow me down” phenomenon by taking steps to protect yourself:
- Do not charge excessive amounts to your card. Spending sprees and maxing out your card raises a flag in the credit card company’s computer, telling them that you may be a high-risk spender. These actions make a spending limit cut more likely.
- Call your credit card provider before paying your balance. While there are no guarantees, communicating with your provider directly may prevent your spending limit from being cut. Ask them whether you are at risk for a spending limit decrease and whether they can help you find a solution.
- Stay current. In addition to maxing out your card, late payments are another way to slice your spending limit. In this economy, banks are apt to favor steadfast customers who pay their bills on time.
The economy has taken some hits, but don’t let the same thing happen to your credit score. An attempt to fix credit should be praised, not punished. Beware of the dangers of the “follow me down” phenomenon and use the tools above to avoid it.