Credit Cards Issuers Are Lowering Credit Limits

In the last few days, I have seen a few data points on reddit where people have reported that credit cards issuers are lowering credit limits. I thought it was just a few random cases, and there could be any number of reasons for a credit card issuer to lower your limit. But apparently it is not random. This is happening for new or existing customers during the coronavirus outbreak. This comes as millions of Americans are now jobless, or have lost significant income, and are struggling to keep up with payments.

Synchrony, Chase and Discover

Synchrony Financial is one of the issuers that has acknowledged lowering limits. They issue cards many cards for merchants such as J.C. Penney Co., Gap Inc. and American Eagle Outfitters Inc.. 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.

Some of the data points that I mentioned above were for Chase credit cards. So it seems plausible that other issuers are doing the same thing, but are just acknowledging it yet.

Discover also said that it is lowering lines of credit for new customers, Bloomberg reported. In a regulatory filing late Wednesday, the firm said it’s also easing off efforts to sign up consumers and that 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. “As part of our credit response to Covid-19, we haven’t made any changes in terms of closing inactive accounts or doing more line decreases,” Hochschild said in a separate interview.

Americans Have More Debt

American already were carrying more debt even before the pandemic broke out. Household debt had surged in 2019 already, marking the biggest annual increase since just before the financial crisis. 59% of American credit cardholders entered the COVID-19 outbreak already in credit card debt. That’s equivalent to about 110 million U.S. adults. 56% of those with credit card debt have carried it for more than one year, BankRate reports.

Lower Limit Might Affect Your Score

Lower credit limits might prevent people from making purchases they need, if they were already close to their limits. Even if you were using a small percentage of your credit limit, it could still effect on your credit score.

When it comes to calculating your credit scores, credit utilization is one of the most important factors. 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.

Let me know if your credit limit was lowered in any of your credit cards.