DEFINITION of 'Balance Chasing'

The gradual lowering of a consumer’s credit limit by a credit card issuer as the consumer pays down the card’s balance. Balance chasing means that instead of a consumer freeing up credit as she pays down her balance, she continues to have little to no available credit. A credit card issuer might engage in this practice if it wants to limit its risk by limiting the amount of credit available to a particular consumer. Unfortunately, there is nothing a consumer can do to prevent a credit card issuer from chasing his balance.

Balance chasing may be more likely to happen if the consumer engages in behavior that makes him look like a high-risk borrower, such as making a late payment or defaulting on another card.

BREAKING DOWN 'Balance Chasing'

An unintended consequence of balance chasing is that it can make it difficult for a consumer who is trying to get out of debt to improve his credit score. About one-third of your credit score is based on your credit utilization, which is the percentage of your available credit that you’re using. The lower the percent of credit in use, the better it is for your score. If you’ve maxed out a $5,000 credit line, your credit utilization is 100%. If you then pay down that balance to $4,000 and your credit line remains at $5,000, your credit utilization drops to 80%. But if the credit card issuer chases your balance and your credit limit drops to $4,000 as soon as you pay your balance down to $4,000, your credit utilization remains at 100% and your credit score will not improve. The good news is that on-time payments also account for about one-third of your credit score, so you may still see a boost in your score as you pay down your debt as long as you don’t miss any payment due dates.

If you’re still making new purchases with the card that you are paying down the balance on, make sure to pay attention to your available credit. Balance chasing could cause your available credit to drop unexpectedly and cause your card to be declined. In a worst-case scenario, if you have opted in to credit card overlimit fees, your transaction could go through but you could then be charged a fee for exceeding your credit limit. Plus, since you’re already carrying a balance on the card, you’ll be paying interest on your new purchase from the moment you make it.

  1. Credit Utilization Ratio

    An input used in determining a person's credit score. It is the ...
  2. Credit Card Balance

    The amount of charges, or lack thereof, owed to the credit card ...
  3. Opt Out Right

    A consumer’s authority under the 2009 Credit CARD Act to disagree ...
  4. Credit Score

    A credit score is a number ranging from 300-850 that depicts ...
  5. National Issuers

    Credit card companies that give credit cards to creditworthy ...
  6. New Balance

    The new balance is the sum of your previous balance, payments, ...
Related Articles
  1. Personal Finance

    Should You Increase Your Credit Card Limit?

    Should you ask for a credit limit increase? The answer is yes, and there are several good reasons why.
  2. Personal Finance

    Take the Right Steps to Build Excellent Credit

    There are several things you can do to protect and improve your credit score.
  3. Personal Finance

    Credit Repair: How to Improve Your Credit Score

    There is no quick fix for a bad credit score, but there are several strategies you can take to improve your credit rating and save money over the long term.
  4. Personal Finance

    3 Easy Ways To Improve Your Credit Score

    A better credit score can improve your financial future. How can you improve your score?
  5. Personal Finance

    Should You Use Credit Cards To Fund Your Business?

    We give you 4 reasons to consider using a credit card instead of a business loan to fund your business, and how to be smart about it.
  6. Personal Finance

    Terrible Credit Score? Try These Credit Cards

    When your credit is less than stellar you have fewer choices. But some are still better than others. Here's our read on which cards to get.
  7. Personal Finance

    Should Your Credit Rating Scare You?

    Take the mystery out of credit scores by learning the most important ways it can impact your life.
  8. Personal Finance

    How Many Credit Cards Should You Have?

    National stats indicate most consumers have three or more cards - are you one of them?
  9. Personal Finance

    The Importance Of Your Credit Rating

    A great starting point for learning what a credit score is, how it is calculated and why it is so important.
  1. How do secured credit cards help me build my credit score?

    Find out how secured credit cards function and why they can be very useful for those looking to build or rebuild their credit ... Read Answer >>
  2. How do I get a higher limit on my credit cards?

    Understand how credit limits work with major credit card companies and things you can do to get a higher limit on your credit ... Read Answer >>
  3. Can a Best Buy credit card help you build credit?

    Learn about how using a Best Buy credit card responsibly can lead to a higher credit score and lower interest rates on mortgages ... Read Answer >>
Trading Center