The sky's no longer the limit: Six tips for keeping your credit limits intact

NEW YORK -- Your house is no longer an ATM, but you've got plenty of available credit on those credit cards, right? Not so fast.

Funny things have been happening lately. You tried to put a family dinner on your American Express card, but were denied. Over the credit limit. Huh? Embarrassing. Shocking, in fact. You thought you had a nice five-figure cushion.

You realize something else is amiss. Nobody has tempted you with unsolicited credit-limit increases lately. For that matter, you're not getting as many credit card offers in the junk mail stack, either.

What's going on? It's simple. Banks that issue Visa and MasterCard credit cards and financial services companies such as American Express aren't doing so hot these days. To protect against losses, they're tightening credit limits. Some, like Washington Mutual, are predicting loss rates as high as 10.5% on ordinary credit card debt. See related story on rising delinquency rates.

Can they arbitrarily reduce your limit? You bet. And small-print disclosure requirements usually make it a surprise.
No surprises here, please. It's worth 15 minutes to check your limits and to play a little defense.

Know the triggers

Here's why credit-limit reductions happen:

• Signs of credit trouble. A late payment, mortgage delinquency or even a small drop in your credit score, such as may happen when you apply for a new card.
• Signs of income trouble. That could mean being employed in industries such as real estate or construction, or even living in an area ripe with foreclosures. Some small business owners are also feeling the pinch.
• Companies staying ahead of new laws. A new Senate bill, the Credit Card Reform Act (S.2753) introduced in March, would restrict the ability of issuers to change credit card terms. Issuers are worried and trying to stay ahead of this.

Play defense

I recommend the following:

1. Review limits. Pick up the phone or go online to review limits for the cards you use most often. You'll avoid surprises and the "snowballing" scenario: reduced limit, over-limit charge, further reduced limit.

2. Get in front of mortgage problems. This is all just one more reason to stay ahead of any potential mortgage difficulties. Banks have their ways of finding out who's in trouble; a delinquency will cause them to go conservative with you.

3. Be a perfect payer. Goes without saying - don't miss payments, don't bounce checks. Again, any clue of trouble will lead to reduced limits and more pain reestablishing credit. Also, review your credit report for any fixable glitches.

4. Heed the signal. If someone's cutting your credit, there's a reason. Most of us got too much credit in recent years, now's the time to live within credit means. Get conservative.

5. Seek aggressive competitors. If you're determined to keep the limit, find competitors vying for market share.

6. Be a good customer. Keep a long-term relationship with your card company, charge a modest amount, pay some interest occasionally - it'll be easier to get what you want.

Remember, debt is a liability but credit is an asset. Take care of it, and it'll take care of you.

Peter Sander contributed to this article.