Gephardt: What To Do When Credit Card Issuers Cut Your Limits

Aug 14, 2020, 6:12 PM | Updated: Jun 19, 2022, 10:02 pm

SALT LAKE CITY, Utah — If you’ve had your credit card abruptly canceled by your bank or your limit lowered recently, you’re not alone. Millions of Americans have had this happen to them as banks try to curb their risk in the uncertain pandemic economy.

According to CompareCards, an estimated 70 million of us had our limits slashed or our accounts canceled by banks between mid-May and mid-July. This is an addition to the 50 million cardholders who had this happen to them in April.

In the latest survey, most credit limits were cut by no more than $1,000. Still, 22% of those limit drops were at least $5,000. And one in four cardholders told CompareCards that at least one of their credit cards was closed involuntarily by their card’s issuer.

“Banks don’t know who is risky to lend to and who is safe to lend to,” said Matt Schulz, chief credit analyst for LendingTree, the lending marketplace that owns CompareCards. “When the economy is good, they’re willing to give out credit pretty easily, like we saw all the way up to February. But when the economy turns, all that calculus changes and they start to view unused available credit that people have as risk, and they want to pull that back.”

Schulz said banks and credit card issuers are trying to stave off potential losses from the pandemic’s economic impact. And they can cut your limit without advance notice, even if your job situation is still fine and you are still paying bills on time.

“There’s really nothing that you can do to guarantee that you won’t be impacted by a credit limit reduction or a card closure,” he said.

You get punished in the process because this lowers your overall available credit and that lowers your credit score — possibly big time — because 30% of your FICO credit score is made up of how much available credit you have. The lower your score, the more you pay for a house, a car, insurance, or a loan.

So, what can you do?

“Make sure that none of your credit cards are completely inactive or dormant,” Schulz advised.

Banks and credit card issuers cancan cut your limit without advance notice, even if your job situation is still fine and you are still paying bills on time.

Get those cards out and use each of them for a small purchase. It could be a grocery run, a streaming service or a tank of gas — something under $50. Then completely pay it off and repeat every couple of months.

Another option: Ask your bank to restore your limit.

“You can call your card issuer and ask them to reconsider, or at minimum, to give you a reason if they didn’t,” said Schulz. “No guarantee that it’s going to work, but it certainly can’t hurt to ask. If you have a long-term relationship with that card issuer, they may consider giving you a break and helping you out.”

As for when banks will stop slashing limits like this, Schulz said it probably won’t end until we have some sort of certainty about the coronavirus, and that may take finding a vaccine.

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Gephardt: What To Do When Credit Card Issuers Cut Your Limits