My Problem with Banks Abruptly Reducing Credit Card Line Limits

[Mike 03]

As I posted last week, my mother's credit card limit was reduced in spite of the fact she always pays her bill on time and in full.

Today we learned that one of the targets of banks is "unused" credit lines. They are looking at our credit card records and bills and trying to determine what percentage of our available line we access and whether it is worth extending us that amount if we seldom or never borrow close to that limit.

Some people may ask, what is the big deal if you never ever even come close to your limit, and it is a ridiculously high limit like twenty or thirty grand?

This is my rationale for wanting a large credit card limit for my parents, my loved ones and myself. It's very simple.

In case of an emergency. It's that simple. I'm a responsible credit card holder: I used it sparingly but I use it monthly, and I pay the entirety of the balance off in full, and I have never been late with a payment in my life.

One reason I have tried to be a good credit card holder is for the very reason that I want to gain my creditor's trust and get as large a limit as I possibly can in case some dreaded event occurs where I need to access that line of credit. It could be a medical catastrophe to myself or someone else in my family, or I may need to extend that credit to someone close to me who is in a tight spot. There are a dozen reasons I can think of why that limit might come in handy.

That is why I think it's wrong to drastically cut credit limits wholesale, without some sort of rationale from the credit card companies about who they are choosing and why.

Secondary concern: What does this do, if anything, to our credit records? Does it reflect badly on us if we have our credit limit reduced for no apparent reason? Will it make us look like flakes even if we have been responsible cardholders?

*grumble*

Rant over.

[unpossibles]

1. I agree completely

I once had my limit lowered to very close to what my balance was, and it totally screwed me later when I did have an emergency - not only in the obvious way, but suddenly a single fee bumped me into "over limit" area with all the added fees, when before I was nowhere near my limit.

[Mike 03]

5. That's exactly the kind of scenario I fear.

I'm sorry you had to go through that. It's really not fair to the cardholder at all.

[Incitatus]

11. That's probably why they are doing it.

They can't make much money off you if you pay in full every month and are never late. The industry term for people like that is 'deadbeat.

[donco6]

2. Have you called and asked them to raise it? n/t

[Mike 03]

6. Mine hasn't been cut yet, and although I discussed this issue with my

mother, she is not as upset about it as I am. Fortunately she has good health insurance and some money stocked away.

But I guarantee you if it happens to me I will be phoning my banks.

[donco6]

19. I would go ahead and do it.

I'd bet they had some computer program scoop off all the unused credit lines to reduce their liability. I doubt anyone has even looked at any credit history or anything like that. But if you call, they may take the time to look over your account and reinstate some or all of the line. It's worth a shot.

[Cronus Protagonist]

3. I can tell you a possible "why" on that

There are a lot of people transferring balances from one account to the other. If they let too many people have high credit limits unused, it's easy to price shop. With less balance available, price shopping disappears, hence they can jack up the prices and not worry about losing so many "customers".

[Mike 03]

8. Ah. That's fascinating and I never thought of that.

Thanks for the insight.

[onehandle]

4. Any movement in your credit such as a limit reduction will ding your credit.

However, a reduction is a small ding that will heal relatively quickly.

Open an account: They ding you.

Close an account: They ding you.

Make a substantial purchase or get a cash advance: They ding you.

Pay off a balance: They ding you.

Get your credit rating: They ding you.

[Midlodemocrat]

7. You are entitled by law to a copy of your credit rating every year.

YOU checking your rating doesn't hurt your rating. Only inquiries about additional credit.

[onehandle]

13. Partially true. The credit report you are entitled to each year does not ding your credit.

But, it's only your credit report. It does not include your rating. You have to pay extra for that and to each of the three credit companies if you want a truly accurate count.

And that does ding you.

On edit: I may be wrong on that. They may have changed it and the inquiry made by you on your score my not hit your score. I'm looking.

[Midlodemocrat]

21. I think you're wrong, but I'm not positive.

Checking your own score doesn't impact your FICO. Only if someone does it in the interest of your seeking credit.

[xchrom]

16. the tracking, the 'dinging', the amount of effort

put into researching the vast majority of people who pay their cc's responsibly is just a nightmare.

and it's going to hurt the engine of any economy -- the middle and lower classes.

[Matariki]

26. You don't get 'dinged' for paying off your balance.

Where in the world did you get that idea?

My credit score predictably goes *up* when I pay off a balance.

Requesting your credit rating, if you're the one doing it, doesn't affect your score either.

[sofa king]

29. And if you don't have one at all, it's a tree falling in an empty, dingless forest.

The same forest in which I scratch for nuts and berries.

[Kansas Wyatt]

9. Hmm... They must know that times are going to get a Hell of a lot harder.

Seems like they don't want people to have any credit in the future, because some horrible crisis is coming and they don't want people to fall back on them.

[Mike 03]

10. You know, just after I posted my post, it occurred to me that maybe they are thinking

the exact same thing I am: Huge Catastrophe. Use credit card to the max. Be unable to pay.

Oh boy. This is getting bad.

[mnhtnbb]

15. You just posted while I was typing!

[orleans]

17. did you see my post lately? i got $10,000 cut from my available

credit on a target card. it left me with $50 available credit.

it was a target card.

i was so pissed/upset--for the reason you mentioned upthread--in case of emergency. now what?

[mnhtnbb]

14. Falling back is not their fear. They're afraid you'll use the credit and not pay it back.

After all, most credit card interest rates are next to usurious. If home equity loans are non-existent
and the banks won't make personal loans, the next source of loans that could go bad would be credit
cards. What's to prevent someone from taking a cash advance and walking away?

[Silent3]

12. Another possible "why"...

In this economy banks are worried that the "dreaded event" you speak of, when you decide to call on that long unused credit line, is going to be unemployment, perhaps long-lasting unemployment. No matter how good your personal credit history is, it's no guarantee of your ability to remain employed during a bad recession or a depression.

[theoldman]

18. Interesting. So far I have not had any limits on any of the three

cards that my wife and I use. We pay in full each month and have limits far above our monthly totals. I will keep my eyes open for any changes.

[mashimaro]

20. One card lowered their interest rate without me asking them to do so

First they sent a letter they were closing my account because I hadn't used the card for several years. Then a month later they sent me a letter saying they were lowering my rate from 12.9 to 7.9 starting in 2009.

I had another card that paid cash back and they lowered the cash back amount from 5 percent on gas and groceries to 3 percent so I switched to another cash back card at 5 percent. I put around $400 a month gas on the card and it gets me around $50 back every two months or so and I pay it off every month. I'm just another deadbeat or bottom feeder...lol

edit: No changes on any limits on these cards.

[mike_c]

22. hard to be sympathetic toward your arguments...

...because I simply don't participate in the same world that you live in, at least not to the degree you apparently do. I have NO consumer credit cards at all. Period. I don't use them. I don't want them. I don't give a rat's buttocks what banks do with them, but I have long advocated that they file them sharp and stick them where the sun doesn't shine!

Like most Americans, I am still somewhat beholden to the credit "industry"-- if an enterprise whose only product is debt can be called an "industry"-- because I have financed cars over the years, and my college education. Interestingly though, those debt "products" seem to work quite differently from the consumer credit norm in that automakers are more interested in selling their cars than they are in generating paper debt, in most cases, and most non-commercial student loans are viewed as at least partially altruistic-- and partly as ways to generate the professionally employed base of the indebted class. Neither, in any event, entertain such notions as 28.5 percent interest rates, i.e. neither have generating the most debt possible as their primary purpose.

[Scooter24]

23. I actually had an increase a month ago

from 75k to 100k. I have one other card that has no limit that I use frequently.

I am surprised to hear that they are cutting limits as much as they are on a lot of unused lines of credit because the card I have that was raised was only used three times this year. The last being a jetski purchase in early July. I figured they were going to cut lines, but not by as much as they have been.

[Fresh_Start]

24. its actuarial

reducing the lines reduces the losses of the credit card issuer.

Its not that they suspect your mom is bad credit.
Its that they know that in the group of people similar to your mom: a couple percent of them will become bad credit.
And when those people (who will use the majority of their line) go bad, it makes the entire group of accounts risky.

In an environment like we have today, even previously stellar customers will have bad performers at a higher than normal rate. They don't know "WHO" will go bad until its too late to control the losses so by reducing the 'bad dollars' by reducing the lines enmass, they are being proactive in reducing their overall risk.

[Matariki]

25. They're planning on targeting 'unused' credit lines?

That makes borrowing a maximum of 30% of your line difficult. The reason for not going over that amount is, of course, to keep your credit rating higher. Perhaps they want people who have good credit to suddenly be close to their limits so they can ding their rating and charge higher interest? :tinfoilhat:

[TexasObserver]

27. The credit card companies are in trouble for offering credit too freely.

It makes perfect sense that they would cut back your credit lines and everyone else's, too. The credit pie is shrinking. An economy with less productivity has fewer dollars to service credit card debt. These companies cannot afford to lose more money, and allowing limits 4-5 times the top charge is a trap for such companies. As you state, you'd use the cards in an emergency, transferring your economic trouble to them. That's why they're cutting back. Too many consumers with financial problems are riding their credit lines down, often on the way to bankruptcy.

[wroberts189]

28. wamu just cxled my card and dropped my limit from 25 to 16k

said in the letter they are chase now. There was no notice or number to call.



cause I had not used it in a year ..zero bal.

[grace0418]

30. Banks DON'T LIKE those of us who pay off our cards every month. We're nearly worthless

to them because we don't rack up finance charges that have to be paid off. So even though it seems like they should be catering to their customers who use credit wisely, they actually don't like that they can't make oodles of cash off of us. They'd much rather give a long rope to people who will hang themselves with it.

[KamaAina]

31. Greetings, fellow deadbeat!

Yup, that's what they call us: "deadbeats". How Orwellian is that?

[grace0418]

33. I know, I learned that about a year ago, that I was a deadbeat for being responsible.

Up is down and down is up.

[smoogatz]

32. Your mother's credit line was reduced

*because* she always pays her bill in full and on time. In credit-card company terms, she's known as a "deadbeat."

[cascadiance]

34. I think that if they do this gratuitously, it is time to regulate them more again!

And basically tell them that they can't jack up people's interest rates or charge fees beyond a certain rate if they start doing these measures.

When they used to have states be able to put these sorts of restrictions on them to protect their residents it kept the Credit Card companies from being overly risky in how big a credit line they opened up, since they have no incentive to try and "get people on the hook to be able to ding them with fees and high interest later. We need to go back to this. The earlier regulatory climate was before that bigger court decision ruled that it was the credit card company's state and not the cc holder's state that "makes the rules".

This should be what congress does in the next session to protect us from getting SCREWED by these CC Companies. And if Biden wants to play the bankruptcy bill stuff again, he should stand to the side and not get involved in this (though he shouldn't be beholden as much to Delaware as he was in the past).

[2Design]

35. order more cards - get 0% - go to disney site and chase

always has 0% for purchases for six months, order it, use it, pay off other cards, a month or two before it is up, order another one, when it comes stop using the last one and pay off before the 0% is up, start using new card - don't depend on one company - they are vultures, mafia, etc. treat them as 'thugs' and look out for yourself