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.

RELATED TERMS
  1. Credit Card Balance

    Credit card balance is the amount of charges, or lack thereof, ...
  2. Credit Utilization Ratio

    The credit utilization ratio is the percentage of a borrower’s ...
  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. Secured Credit Card

    A type of credit card that is backed by a savings account used ...
Related Articles
  1. Personal Finance

    Why and How to Use Credit Cards Effectively

    When used responsibly, credit cards play a big role in establishing a good credit score that can help you obtain loans, mortgages and insurance.
  2. 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.
  3. 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?
  4. Personal Finance

    4 Reasons To Increase Your Credit Card Limit

    It seems contrary to smart financial planning, but increasing your credit limit can actually be a smart move.
  5. Personal Finance

    Five Easy Ways to Improve Your Credit Score

    If you credit score isn't where you want it to be, use these five steps to improve it.
  6. 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.
  7. Personal Finance

    How Many Credit Cards Should You Have?

    National stats indicate most consumers have three or more cards - are you one of them?
  8. 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.
Trading Center