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Ask Sid

A Lower Credit Ceiling Needn’t Cramp Your Score

Q. I've always paid my credit card bill on time and more than the minimum due, but like thousands of others, my spending limit was recently cut. How will this affect my FICO score?

A. Probably very little if you continue to be a diligent plastic user, says Careen Foster of FICO, the company that invented the credit risk score that lenders use.

FICO recently unveiled a study on how such cuts in spending limits affected the credit scores of cardholders with no previous "risk triggers" such as making late payments or exceeding their credit line. Between April and October 2008, FICO looked at about 32 million American cardholders who had no such black marks but had seen their credit lines reduced. The vast majority experienced only a small change in their credit scores—20 points or less.

Overall, Foster says, the FICO scores of those borrowers slightly increased—from a median of 768 in April to 770 in October. (Higher scores, generally 760 or better, qualify for the lowest interest rates on mortgages and car loans.) Only 4 percent saw their scores tumble by 40 points or more, while the scores of 6 percent climbed by 40 points or more. A study is under way to examine the impact of credit-line reductions since October, when the credit reins began to tighten even more.

For a stellar FICO score, in addition to paying on time and not exceeding spending limits, try to consistently pay more than the minimum—at least one-third, and ideally more than half, of your credit card balance.

Sid Kirchheimer writes about consumer and health issues.

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