A Third of Americans Had Credit Limits Cut or Cards Closed by Issuers

Credit card issuers have cut credit limits for many cardholders during the pandemic. They have also lowered limits offers to new applicants in recent months. Chase has cut limits by up to 80% in some instances. Now a new survey shows that these are not just a few instances, but a nationwide practice that has affected about a third of Americans.

Lending Tree’s Compare Cards website says that about 70 million people said they involuntarily had a credit limit reduced or a credit card account closed altogether in a 60-day period stretching from mid-May to mid-July. The report is a clear sign that credit card issuers are still closing cards and reducing credit limits on cardholders in huge numbers. If people run up their credit card balances to the limit and then default on their debts and file for bankruptcy, banks are out of luck. In the case of a Chapter 7 bankruptcy for example, credit card companies are prevented from taking any further collection action.

The survey found that early 1 in 3 cardholders (34%) said they had their credit limit reduced on at least one card in the past 60 days. Most credit limits were reduced by $1,000 or less, but more than 1 in 5 limits (22%) were reduced by at least $5,000. Nearly 9 in 10 cardholders (89%) who had their credit limits reduced said their card issuer notified them of the move, but almost 1 in 6 (15%) of those said no reason was given.

A cut in credit limit could lower 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. A lower limit means a higher credit utilization, if your debt does not change.

The survey also found that 1 in 4 cardholders (25%) said they had at least one credit card closed by their card issuer in the past 60 days. The most common reasons given for the reductions or closures: credit score decreases, inactivity and missed payments.

The survey shows some positive signs as well. Even though a higher percentage of cardholders said they were affected in this survey compared to the one that was done in April, it appears that the pace of these actions slowed slightly.

• During the 30-day period from late March to late April, about 50 million cardholders were affected. That’s 1.7 million per day.
• During the 60 day period from mid-May to mid-July, about 70 million cardholders were affected. That’s 1.1 million per day.