Credit Card Issuers Are Lowering Credit Limits
As millions of Americans are now jobless, or have lost significant income, and are struggling to keep up with payments, banks are taking notice and lowering credit limits. This is happening for new and existing customers.
Synchrony Financial is one of the issuers that has acknowledged lowering limits. They issue cards many cards for merchants such as J.C. Penney, Gap Inc etc. In a conference call Tuesday, the company said it is using its own data, as well as information from credit bureaus, to “dynamically reevaluate a customer’s creditworthiness,” Bloomberg reports. That means some may be allowed to spend more, but others less.
Discover also said that it is lowering lines of credit for new customers, Bloomberg reported. The bank said it’s also easing off on efforts to attract new as it expects to take a hit from coronavirus relief programs that let customers skip payments or delay the accrual of interest. Discover said that it is requesting more information now for new customers, in order to avoid risk, such as additional verification of employment. But they said they “haven’t made any changes in terms of closing inactive accounts or doing more line decreases.”
I have also seen several data points on reddit in recent days where people have reported that some of their Chase credit card had lower limits.
Lower Credit Limits
Banks are doing this to limit their exposure to the financial crisis due to the pandemic. For consumers, lower credit limits might prevent them from making purchases they need right now, if they were already close to their limits. Even if you are using a smaller percentage of your credit limit, it could still effect on your credit score.
Credit utilization is one of the most important factors of your credit score. That is the ratio of your outstanding credit card balances to your credit card limits. If your balance is $300 for example and your credit limit is $1,000, then your credit utilization is 30%. Anything under 30% is okay, but something closer to 1% is perfect. So if credit cards issuers are lowering credit limits, that will increase your credit utilization if you are carrying a balance.
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This happened to me during the pandemic and I’m steadily paying on my bill every month and steadily bringing home a paycheck, woukd understand if I wasn’t able to pay my bill and this was with Chase.
Synchrony and Discover have always been bottom feeders so it makes sense to lower customer limits. However would not be wise for big banks particularly the cards that are marketed to well heeled customer. I personally did not see this in 2008 (despite having 2 dozen or so cards).
Chase did this to me years ago. I had about 5 Chase cards and each had 8k to 16k’ish limits. I ran into a very slight financial challenge that didn’t impact or hit my credit reports, just extra bills and such and ran up a couple thousand on several of them. Oddly they cut all of them back to 3k to 6k i limit. Well guess what that impacted my credit scores because my usage went from like 5 or 10% to 50% or higher. I paid all of them off soon after and Chase is slowly increasing my limits but I will never trust them again. It was a big turn off as a customer. I didn’t mind the credit limit changes but it impacted my FICO negatively and lost about 100 points off of it for awhile. It’s shameful. I will continue to churn Chase cards but I’ll never give them debt business again. I would think the store branded cards would be much worse hit on FICO. They are already a hit on most FICO scores compared to Visa, MC, etc. and considered subprime indicators of credit worthyness. Add a 90% usage and it could be very bad I’d think.
I don’t think any other bank would have treated you or anyone any better in this exact situation.
It’s not shameful. If it was your money on the line that you lent you would feel cautious and want to reduce risk. A lot of people abuse credit cards and walk away from paying it back. Bankruptcies need to be made much tougher to protect against people who deliberately rack up charges and don’t pay them back. There are hardship programs for people who have temporary setbacks. Since you were a new customer you were a bigger risk to Chase and your credit profile and income did not put them at ease during strenuous financial times. I understand you were affected by reduced limits but it wasn’t wrong for the bank to do. People who have been customers longer give banks more data they can use to show them you are a good credit risk.
A better option would be for credit card companies to leave limits intact but to put a hold on a certain percentage during times of financial stress. That way your credit score and utilization is not adversely affected but the bank is protected.