Why Did Your Credit Limit Just Drop?
When the coronavirus pandemic reached the US, credit card issuers responded by promoting their programs to help customers who might delay your payments or suggest other adjustments during this confusing time.
But behind this generosity, the pandemic has other implications for the credit card industry. And they can affect your bottom line.
Credit card companies are starting to ditch introductory offers to new customers and are even cutting credit limits for existing customers.
A CompareCards survey found that 25% of credit card holders saw their credit limit decreased or their card was closed in the last 30 days. Based on the response, the site estimates that nearly 50 million cardholders have had their limit reduced or their accounts closed.
This survey, published today, found that baby boomers experienced far less than generations X, Y, or Z, but it affected users across all income levels.
41% of respondents were unaware that their credit card issuer could cut the limit without notice.
Lenders Take Big Steps to Reduce Risk
According to Bloomberg , Discover Financial Services has acknowledged that it is cutting back on new customer acquisition efforts and offering these new customers smaller lines of credit. The same article reported that Synchrony Financial, which operates many of the store’s credit cards, will reassess some of its customers’ creditworthiness, which could mean adjusting credit limits.
And it’s legal. Federal law requires card issuers to notify you 45 days in advance if your interest rate changes. But in most cases, they can change your credit limit or decide to close your account at any time.
One of the reasons credit issuers are moving away from this is because of the programs they have put in place to help existing clients who find it difficult to make recurring payments. Capital One reported that 1% of its accounts went into the customer assistance option, the Wall Street Journal notes that it can’t seem like a lot until you realize that the company has approximately 120 million credit card accounts in the United States.
Another reason is that consumers don’t spend as they usually do. Consumers are worried about paying off their existing balance while covering basic expenses rather than booking travel tickets or paying for a night in the city. In particular, the use of in-store credit cards is declining because there is no room for walking in the malls. This aspect raises two problems: consumers spend less and card networks receive fewer read fees.
The outlook for lending has changed rapidly
And then there is the general state of the economy. “There are now many outstanding loans that didn’t seem risky a month ago, but now seem very risky,” said Matt Schultz , chief credit analyst at Lending Tree (CompareCards parent company). “When unemployment rises sharply and the economy changes dramatically, all the calculations for banks change.”
So if you got your premium card approval in January or increased your credit limit last fall? No wonder. But just as you may be trying to lower your own financial risk by eliminating unnecessary expenses during a pandemic, credit card issuers are also trying to lower their own risk. Credit ebb and flow – After the 2008 financial crash, credit limits and new registration proposals were limited.
But the financial instability of the time, still fresh in the minds of many, seems to pale in comparison to our pandemic economy if you look at the numbers.
“A lot of people have their credit lines pulled out when they need them most,” Schultz said. “If you are relying on a credit card to get your next paycheck or unemployment check and your limit is suddenly much lower, it could be causing you serious problems.”
What to do if your credit limit is cut
Banks operate broadly, not surgically, Schultz said. Don’t take it personally if your credit limit has been cut – card issuers are looking to significantly reduce their credit risk by not checking every line item in your account to guess if you’re still working or not.
If your account has been closed or your credit limit has been lowered , you can ask your issuer to reconsider this step. It is possible to get the card issuer to go back down the credit limit, but there is no guarantee that they will be playing, especially in this “new normal”.
To avoid adjusting your cards, try to use cards that often get lost at the bottom of your desk drawer, Schultz said, as dormant or infrequently used accounts are more likely to be closed.
This does not mean that you have permission to charge tons of money to prove that you are using your loan. It simply means that you can change your billing for the monthly subscription to use a dormant card, or you make a scheduled purchase with that card and pay for it right away.
In the meantime, if you are in the market for a new credit card, you can get approval. While it is not as easy as it was a few months ago, Schultz assured me that the new loan is not limited to people with excellent credit ratings. Sign-up bonuses still exist for bonus cards, and applications for secured and recovery credit cards are also accepted.