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. Opt Out Right

    A consumer’s authority under the 2009 Credit CARD Act to disagree ...
  2. Credit Mix

    The types of accounts that make up a consumer’s credit report. ...
  3. Negative Information

    Data in a consumer’s credit report that lowers his or her credit ...
  4. Late Fee

    A charge a consumer pays for making a required minimum payment ...
  5. Minimum Monthly Payment

    The smallest amount of a credit card bill that a consumer can ...
  6. Credit Card Arbitrage

    Borrowing money at a low interest rate from a credit card then ...
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

    Why Too Many Credit Cards Can Hurt Your Credit Score

    Find out why having too many credit card accounts can adversely impact your credit score if the cards are not managed properly.
  3. Personal Finance

    Take the Right Steps to Build Excellent Credit

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

    4 Unexpected Things That Lower Your Credit

    It's important to maintain a good credit score. Discover what could be lowering it without your knowledge.
  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 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.
  7. 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.
  8. 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.
  9. Personal Finance

    How Many Credit Cards Should You Have?

    National stats indicate most consumers have three or more cards - are you one of them?
  10. 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