Balance chasing is a practice that credit card companies use to minimize their risk when lending to borrowers who are risky. It involves reducing the credit limit on a credit card to just above your current balance, making it appear as if the customer has maxed out their card. This practice can have a negative impact on a person’s credit score because it increases their utilization ratio, which accounts for up to 30% of their credit score. This can be a one time occurrence or can happen continuously as you pay down the card.
People who have a significant balance on their credit card, which is not paid in full, or those who pay their balances too slowly are at a higher risk of balance chasing. Credit card companies are wary of slow payers because they assume that the customer is struggling financially. Therefore, it is essential to pay off the entire balance each month to avoid balance chasing.
If balance chasing does occur, it is crucial to act quickly to minimize the impact on your credit score. The best option is to pay off the balance ASAP. It is essential to remember that adding new credit could be difficult if you are already overextended. In this case, it may be best to focus on paying off the existing balances before requesting any new credit.