"Surprisingly, the CARD Act requires advance notification of a rate increase, but does not require advance notification if an issuer closes your account or decreases the credit limit on your card," says Bill Hardekopf, the CEO of LowCards.com.
Clients need to consider how credit line cuts might affect their credit scores in an already tight credit market. A credit score is a fluctuating measure of risk, which can affect a potential borrower's ability to get credit, secure employment and get attractive auto insurance rates. It also greatly influences the interest rate and other terms of a loan. Often, credit scores are proprietary to the credit issuer, but most lenders at least take into account the "FICO" score, issued by Fair Isaac Corp. in Minneapolis.

A FICO credit score of 850 is tops. But FICO scores above 700 are considered very good. FICO scores below 600 indicate high risk.

A Fair Isaac Corp. report estimates some 33 million U.S. cardholders had their credit lines cut between October 2008 and April 2009 before the adoption of the new rules. Some 24 million saw their limits reduced even though they had no new risk triggers in their credit reports, and their credit limits were slashed by an average of $5,100 even though they had an attractive median FICO score of 760.

Of the 24 million good credit risk consumers that had their credit lines slashed, Fair Isaac says one-third, or 8.5 million, experienced a drop in their FICO score. The typical drop was well under 20 points.

Even if your clients don't need credit right now, a closed card account or a reduced credit line may hurt. What can your client do if he or she faces any kind of hardship?

Under the new credit card law, creditors must review any increase in a credit card annual percentage rate after January 1, 2009 every six months, starting next August 22. This means your client, next August, may be eligible for a rate reduction, based on the risk factors that led to the increase.

Ulzheimer says there are a few ways to tweak a credit score. One is that the borrowers can lower the balances by paying down their credit cards. Better yet, they can convert much of their unsecured credit card balances into a secured loan-ideally, a closed-end home equity loan. Secured loans are not only treated much better than credit cards in a person's FICO score, but the interest on the home-secured loans may be tax-deductible.

Consider, though, that converting unsecured debt into home-secured debt may also cause harm if the client is unable to control spending, because then he or she risks losing the house.

A credit score may be helped if a client opens one or two new credit card accounts. Plus, according to Ulzheimer, "right now issuers are still allowed to close down accounts. You want [your clients] to have other options if this happens."

On the other hand, warns Fair Isaac spokesman Craig Watts, opening new accounts can hurt a client who is about to enter a debt management plan.