Unanswered Questions: Uncovering the Reason for Your Credit Limit Reduction
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The global economic environment makes it difficult to maintain financial stability. To protect themselves, credit card companies are doing everything possible in the current landscape of uncertainty. Consequently, they should be tracked regularly since such decisions can greatly affect personal finances.
This is surprising that there are some credit cards that have reduced their earlier given credit limits including those for their existing customers. One quarter of respondents reported getting a reduction on their credit limit or outright closure of their cards during the past month, according to a recent CompareCards survey. Such similar decision could have impacted nearly fifty million customers with credit cards.
Even more troubling is that the majority of people asked did not know that this could even happen. Contrary to what a lot of people think, your credit card company can actually reduce your line of credit without sending you any notice and even cancel your card if they feel like it.
The Truth about Interest Rate Adjustments and Credit Card Limits
While federal law requires at least 45 days before interest rates are changed, there is no time frame for reducing the spending limit or closing an account.
How Did This Happen?
Credit card issuers have been hit hard by the recession. The Wall Street Journal reports Capital One having experienced decreased income and job loss among less than 1% of its cardholders who have participated in customer assistance programs. As small as this number may sound considering that Capital One has issued 120 million cards but it reflects industrywide patterns.
In addition, consumer spending has dropped considerably across all sectors. Sporting events and concerts either got cancelled or were being refunded while travel costs such as airfares were lowered for vacation tours. Even simple expenses like dining out and going to clubs dropped significantly. This has resulted in significant revenue losses for credit card issuers collectively as a result, they are now reviewing how they assess risks.
According to Matt Schulz, chief analyst at LendingTree.com: “There’s a lot of outstanding available credit out there now that didn’t seem risky a month ago but seems super risky now. When unemployment spikes and the economy takes a sharp turn, all the calculus changes for banks.”
She said, “A lot of people are having credit limits yanked out from under them when they need them most. If you’re relying on a credit card to get to your next paycheck or unemployment check and your limit is suddenly a lot less, it can cause you some real trouble.”
What Can You Do?
First of all, stay calm. It is frustrating to have had one’s credit limit reduced; however, it’s not too huge an obstacle. Don’t take the situation personally because yours is just one of many accounts. In most cases, your card issuer did not single you out thus reversing their decision might be possible.
Contact your credit card company by phone or in writing. Politely ask them to reconsider their decision about reducing your line of credit. They may inquire about whether you are currently employed but if you still have a job with good salary history and good credit worthiness they could reverse this cut off.
Consider how to prevent a problem after it has occurred. Among the ways is increasing your credit score which can be done by boosting it. If your credit card company sees your high credit limit as a risk, a higher credit score may alleviate such concerns. Although building up your credit rating is gradual and necessitates months or years of sound financial habits, the long-term advantages are worth it.
If you cannot restore the decision by having your credit limit cut off, several other options exist. Look for other offers on cards with similar or higher lines of credit. Additionally, if you are a new customer there might also be balance transfer deals or reward programs available.
Also, if you think that you have been misinformed by current issuer of your plastic money then switch to another one. Take into account propositions from different suppliers to find the one that will suit your financial needs and serve you well enough as well. Remember, most leading issuers offer their services in quite the same way so feel free to find something better in this regard too.
Senior Writer • Business and Information Trends Writer
Lucas writes long-form, investigative articles that explore the deeper implications of business and information advancements.
