Posts Tagged ‘credit limit’

Like many people, I have a love/hate relationship with bars and restaurants that allow you to open a credit card tab. Why? I’m one of those people who sets out to have a “couple of drinks,” but “just one more” always sounds like a good idea.

Handing over my credit card each time I buy a drink is sobering, especially when drinks can cost more than $12 a pop. It’s much easier just to start a credit card tab and face the music when the statement comes.

Lately, I’ve encountered a credit card tab buzz kill, which is credit card pre-authorization. Bartenders have requested that I sign for as much as a $50 pre-authorized charge on my credit card. Now, I understand that they want to protect themselves from customers who open tabs and then skip out without paying their bills. Unfortunately, this forces me to face the harsh reality that I will probably be spending (and drinking) more than I intended.

With the slumping economy, bars and restaurants are experiencing more deadbeat customers than usual. Bartenders who start credit card tabs without making sure the credit card is good may get left without a tip or, worse, may be forced to pay for a customer’s drinks. Credit card pre-authorization is their only line of defense.

Customers need to be alert, too. There are unscrupulous people (who may work at bars and restaurants) who are not above adding an extra gratuity to a credit card tab receipt that wasn’t correctly filled out or leaving the pre-authorized amount on a patron’s card even though the patron didn’t spend that much.

Also, leaving your credit card after a long night of fun is a perfect opportunity for a criminal—someone with access and opportunity—to steal your credit card information. As it so happens the US Justice Department notes individuals between 18 and 24 are the most likely to experience identity theft.

Some patrons, who have had too many beers, may forget to close their tabs and pick up their credit cards at the end of the night. Restaurants typically lock those credit cards in a safe and make the customers settle the tab when they come to retrieve their credit cards. Some establishments, however, are now automatically charging a fee for this service.

For better or worse, credit card pre-authorization for bar tabs is here to stay. It’s a good business practice for the establishment and provides a safety net for its employees.

As a patron, stay sober enough to make sure you’re not being unfairly charged. If pre-authorization is too much of a downer for you, grab some friends and relax with friends and a bottle of wine at home.

Lindsay Woodland

I have an American Express One card that I used to love. The two main reasons are:

• 1% of what I spend goes into a high-yield savings account
• No credit limit

It’s widely known that we’re in a credit crunch, and my old friend is not spared from the crunching.

• The high-yield savings account, which at its peak was 5.25%, is now only 2.75%.
• My credit limit has gone from none to…some.

My once stellar (to me, anyway) savings account is now terrestrial. My once unlimited resource (Vegas, anyone?) is now tethered.

An article in the Washington Post mentions how a sudden credit limit drop can affect your credit score. Using their example: If you start with a limit of $10,000 and revolve $4000, you’re utilizing 40% of credit available. However if the issuer lowers your credit to $5000, your suddenly utilizing 80%. So when your credit score is calculated, you look as if you’re nearing your maximum. And that counts against you.

The Good

I was told (by American Express themselves) that having a card with no limit can damage my credit report. It seems that when calculating the score, if the scorer encounters a card with no limit, it considers the balance as the maximum available. Say I have a $3000 balance on a no-limit card. The credit-scorer wants to figure out my debt-to-available-credit ratio, but it can’t—there is no pre-determined limit. So it uses my balance, $3000, as the credit limit. This makes it looks like I’m maxed out on that card, but in reality I can’t max out.

So, with my newly established credit limit, I no longer look maxed out.

The Bad

By establishing a credit limit, Amex has formed an opinion about me: This guy can go off the handle at any moment. It’s an exaggeration, but it still hurts. I thought Amex and I had something.

The Ugly

But others with the One card have had it worse. One One card holder had his balance reduced to $5000, but he was revolving $6000. Then Amex requested he immediately pay it off in full.

My friend the One card has gone from telling me it’s OK to push my limits to being the voice of reason. Instead of, “You need a new laptop”, I’m hearing “You don’t really need that DVD.” That’s a good thing…after all, Vegas is almost paid for.