Post a new topic
    6 Replies Latest reply on Sep 21, 2010 12:37 AM by BiznessLender

    Paying down cards and my payback is credit limits dropped

    PMELIAN Newbie
      Hey everyone,

      I got to say I'm extremely frustrated right now with how the banks are working the system. I own a buisness (sole propietor) which I've had to use my personal credit to help with alot of the financing. About 6 months ago I decided cc aren't working. Theres to many payments to keep track of, all on different dates. Minimum payments of course do nothing, so I developed a good payment plan to clear atleast 10k of debt every month. I've cut down by the end of this month almost 100k since april. I think anyone would think this is good. Well the goal is to get 1 loan to consolidate what may be left in balances next year and purchase inventory. The frustation is I pay a card off for example. My first 2 cards were 6k and 5k cc's. After paying them both off I get my next statement my new line is now $500 limit. So now I'm out 11k and my credit score didn't improve because my percentage of debt to availability has not improved. I'm going on 4-5 cards now that have done the same, with over 35-40k limits down to 500 on those cards. I'm not requesting more credit either. How is it I'm ok with those limits as long as I have a balance but now am a risk if it's available to me? This makes no sense. My business is doing great with record sales this year (almost double) and a new expansion of products for january is going to take a tole on having to air in more merchandise meaning more of the profit margin being given to freight. Looking over the numbers in air freight alone I could easily pay for the loan I need. The down fall is my business is going on it's 3rd year and I only have a small record for business credit. Sorry if this sounds more like venting, just need any advise from someone going through the same or has gone down this frustrating road before.
        • Re: Paying down cards and my payback is credit limits dropped
          amspcs Ranger
          I certainly hear you. Nobody ever said life was fair. I'm sure the banks have some convoluted reason for
          re-thinking your credit limits having to do with your risk factor or whatever. The REAL tragedy in the changing of the credit card rules is that our lawmakers, in their infinite stupidity, didn't make the needed reforms effective until months and month in advance, giving the lenders plenty of lead time to gouge us in the meantime. That's like saying murder won't be illegal until next Saturday, so if you need to waste somebody do it Friday.
          • Re: Paying down cards and my payback is credit limits dropped
            PMELIAN Newbie
            Lol, well put.

            Let me give a few other details about my buisness. We will be wrapping up our 3rd year here shortly. First year generated 450k, last year 880k and based on this month we are already over 1.25m in sales. I have a contract with a overseas manufacturer and distribut their product here in North America and have exclusive rights to be the sole distributor. All we do is wholesale. Our brand has generated great reviews and feedback and we got in the market at a great time where there was not much of a competition. We will be generating a new line of products in which I can see will bring in another 30-40% in sales next year with the marketing plans we have begun this year. My major issue is funding. A business like this should have been started with a larger working capital which I did not have. The cc helped get me there, but the demand has been growing so fast the cards can't provide. So I used all my personal credit, maxed my cards and now as a sole proprietor the banks will probably not loan me the funds needed. Thats why I have begun to pay the cards off. I can probably be completely out of debt by april next month, but by then I'll probably be shipping over half the items brought in by air. I'm looking to get about 250k loan in which will be put towards inventory. The airfreight makes us lose averagly 5k a month in profits which would easily pay for the loan. Currently we have over 150k in inventory along with other items we could use for colateral, like vehicles and so on. How would you approach a bank with this dilema if my credit score doesn't get better because the percentage of my debt to available credit stays the same. As I drop my balances, they drop my limits. So my percentage doesn't improve. Yet I'm still at a 660-690 depending on what credit reporting agency you look at. I only have 1 30 day late over a year ago because a autopay didn't go through correctly and I didn't realize it. Other than that I have 14yrs of good credit and paying on time. Any advice would be greatly appreciated.
            • Re: Paying down cards and my payback is credit limits dropped
              phanio Pioneer
              Not sure why they dropped your credit card limits unless you stopped using the cards or they realized that you were using them for long-term financing. Credit cards are shart-term vehciles and should never be used for long-term financing.

              There are other short-term financing vehciles that you might be able to use that will work better for your business and do not rely solely on a credit limit like credit cards. If you have accounts receivables - your can factor those. You can factor individual A/Rs or use your entire book for a A/R line. Thus, you are matching your operating cycle with its own financing. There are also puchase order financing - that can be used to help pay the freight - they advance funds based on the order - then you pay it back when you sell the good on your side. lastly, there are Business Cash Advances (these are not loans) if you have credit card receipts from your sales. Payback is based on a small percentage of future sales and should not hurt your profits as bad as the freight you are paying now. These are just better options (more gared towards business and operating cycles) than credit cards.

              Lastly, if you own your vehicles and equipment outright - you could look into a sale/lease back where you sell your equipment (and vehciles) to an equipment lender (just a paper transaction) for cash then lease or puchase those items back on terms (like a loan).

              We list information and resources for all of these on our website.

              Business Money Today
              • Re: Paying down cards and my payback is credit limits dropped
                snccigars Adventurer
                I hate to play devils advocate here, but everything the banks are doing are all things that we all agreed to (whether we knew it or not), when we accepted the terms and agreements of our credit card(s). You may say, I never agreed to anything like this, however, I would bet that if you (and possibly a lawyer) sat down and read every word of every communication sent to you by your cc company, it would all be in there. Also, never forget that using a credit card is just the same as taking a loan, it is borrowed money, just like a traditional bank loan, a pay-day advance, or a pawn shop. It is not our God given right to receive credit every time we ask for it and for whatever amount we ask for. I think we all got very spoiled with the economic boom of the mid 2000's, when they were giving credit like candy. I personally was given credit simply for using my card and paying on time. I went from a $1000 limit to a $7500 limit in a year. That sounds great, but in retrospect, is it financially sound? Would I give that kind of credit to a short term customer of my business? No way! And calling your senator and saying its not fair is childish. As stated earlier, life's not fair! If you don't like how credit cards work, don't use them. "But I need them to run my business and live on." Well then take them as they are until you don't need them anymore. Credit used to be a privilege, not a right. Live within your means, take responsibility for your actions and pay back the money you borrowed as agreed whether it seems fair or not!
                  • Re: Paying down cards and my payback is credit limits dropped
                    Jerica Newbie
                    Our Founding Fathers wrote the Declaration of Independence because what the British were doing was unconscionable. The credit card companies and banks have too tight a hold on the American economy and they have used deceptive practices in the past and been sued. This is where the new credit card legislation is coming from.

                    Now every person who applies for or holds a credit card should understand that the bank will treat you unfairly no matter how pristine your credit is, if it is in their best interest to do so. In this vein we would ideally either not use credit (thus putting the cc's out of business with no customers), pay off their cards every month (which would put the cc's out of business for lack of profit), or close their accounts (which would put the cc's out of business with no customers.) If any of us agree to go along with our credit card bank as it is because it works for us, we are at the bank's mercy. They WILL punish you for being a perfect customer if it profits them.

                    No one should ever see credit as a good thing. Credit exists to make a bank money on what you buy. It's not to make your life easier. They will use any practice they can get away with, legal or illegal to gouge you and your credit history, good standing, and financial future means nothing to them.

                    I think this is the problem in America today: consumers are WAY TOO TRUSTING. You think that banks will be fair in their contracts and if you pay your cards and are responsible, you will be rewarded. That's not how it works.

                    Gone are the days where you could sit back and complain about the people who didn't pay their bills, because the credit card banks make more money off those people than they do off those who pay in full every month. You actually have to thank those who run up high balances and pay only the minimum because they are the ones keeping the credit card in business and able to even offer you credit at all.

                    The system is completely corrupt and rear end - backwards.
                  • Re: Paying down cards and my payback is credit limits dropped
                    BiznessLender Wayfarer
                    Another thing to remember is the banks balance sheets. Many banks have to increase their reserves for whatever credit is outstanding. If the credit outstanding is lowered, then they can drop reserve levels. And that money can be put into loans that have a better risk profile.

                    So, imagine you have thousands of people with 5k cards who have 0 balances on them. That is tens of millions of dollars, that potentially the bank would have to cover tomorrow. So they need to have the reserves put aside to service that debt. There is an expense to that, not even including lost interest.

                    Many banks have followed this process to bring their reserves into line and to shore up their fiscal health. We might not like it, but there is a reason for it. I am sure there are other reasons as well, but this reason alone is a sound business practice from a card issuers perspective.

                    Best regards,

                    Rafael Pabon,
                    President, Business Lending Associates