When the coronavirus pandemic headed for the U.S., credit card issuers responded by promoting their customer assistance programs that can delay your payments or offer other adjustments during this confusing time.
But behind that generosity, the pandemic is having other effects on the credit card industry. And they could impact your bottom line.
Credit card companies are starting to pull back on introductory offers for new customers, and even reduce credit limits for existing customers.
A CompareCards survey found that 25% of credit cardholders saw their credit limit decreased or their card closed in the past 30 days. Based on the response, the site estimates that nearly 50 million cardholders have had their limit reduced or account closed.
That survey, released today, found that baby boomers experienced this far less than members of Generations X, Y, or Z, but that users across income levels have been impacted.
Of the respondents, 41% didn’t know their credit card issuer could cut their limit without notification.
Creditors are making big moves to reduce risk
Discover Financial Services has admitted it’s reducing efforts to gain new customers, according to Bloomberg, and is offering smaller credit lines to those new customers. The same article reported that Synchrony Financial, which administers a ton of store credit cards, will reevaluate some customers’ creditworthiness, which could mean an adjustment to credit limits.
And it’s legal. Federal law requires card issuers to give you 45 days notice if your interest rate is going to change. But in most cases, they can change your credit limit or decide to close your account at any time.
Part of the reason credit issuers are pulling back is because of the programs they have implemented to aid existing customers who are having a hard time making their regular payments. Capital One has reported that 1% of its accounts have entered customer assistance options, the Wall Street Journal points out, which may not seem like a lot until you realize that the company has about 120 million credit card accounts in the U.S.
Another reason is that consumers aren’t spending like they usually do. Consumers are worried about paying down their existing balances while covering essential expenses, not booking travel or charging a night on the town. Store credit cards, especially, are seeing a decrease in use, because there’s no mall-strolling taking place. This aspect brings up two issues: consumers are spending less, and card networks are earning fewer swipe fees.
The credit outlook changed fast
And then there’s just the general state of the economy. “There’s a lot of outstanding available credit out there now that didn’t seem risky a month ago, but seems super risky now,” Matt Schulz, chief credit analyst at Lending Tree (parent company of CompareCards), said. “When unemployment spikes and the economy takes a sharp turn, all the calculus changes for banks.”
So if you got approved for a high-end rewards card in January or got a credit limit increase last fall? That’s not surprising. But just like you may be trying to reduce your own financial risk by eliminating unnecessary expenses during the pandemic, so too are credit card issuers trying to reduce their own risk. Credit ebbs and flows—after the 2008 financial crash, credit limits and new signup offers got reined in, too.
But the financial instability of that time, still fresh in the minds of many, seems to pale in comparison with our pandemic economy when you look at the numbers.
“A lot of people are having credit limits yanked out from under them when they need them most,” Schulz said. “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 to do if your credit limit gets slashed
Banks are acting broadly instead of surgically, Schulz said. Don’t take it personally if your credit limit was cut—card issuers are looking to make big sweeping cuts to reduce their lending risk, not examining every line item in your account to guess whether you’re still employed or not.
If your account has been closed or credit limit reduced, you can ask your issuer to reconsider the move. It is possible to get a card issuer to walk back a credit limit decrease, but there’s no guarantee they’ll be game—especially in this “new normal.”
To avoid having your cards adjusted, make a point to use the cards that often get lost in the bottom of your desk drawer, since dormant or rarely used accounts are most likely to get closed, Schulz said.
That does not mean you have permission to charge a bunch of stuff to prove you’re using your credit. It just means you could change your billing for a monthly subscription to use a dormant card, or you make a planned purchase with that card and immediately pay it off.
Meanwhile, if you’re in the market for a new credit card, it is possible to get approved. While it’s not as easy as it was a few months ago, Schulz assured me new credit isn’t being held only for people with perfect credit scores. Signup bonuses still exist for rewards cards, and secured and credit-rebuilding cards are still accepting applications, too.