Lost income? Banks are more likely to reduce your credit card limit, survey reveals

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Cardratings Staff
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Losing a job or seeing a reduction in income could mean you’re relying more than normal on your credit cards to get you through, but there’s bad news: 21% of recent survey respondents who’ve lost jobs since March 1 have seen banks reduce their credit limits in the past three months.

A recent CardRatings survey revealed that those with job or income losses since March 1, roughly the start of the pandemic in the U.S., are more than twice as likely to report that banks have unexpectedly reduced the credit limits on their card(s). Twenty-one percent of those who have lost income vs. just 9% of those who haven’t report that they’ve experienced a bank reducing their credit limit.

From June 23-30, 2020, CardRatings polled 800 people, half of whom reported having lost a job or experienced an income reduction since March 1, to explore how people are using their credit cards and credit card rewards these days as well as to gain insight into how banks are responding when it comes to credit limits. 

Interestingly, people who have lost jobs also reported having had a bank INCREASE their credit limit with slightly more frequency than those who haven’t lost income – 16% vs. 14%, though this difference is within the margin of error.

“There have been plenty of anecdotes about people seeing cards suddenly closed by banks or even people with excellent credit having more trouble getting approved for a new card,” says Brooklyn Lowery, senior manager of CardRatings.com. “An unexpected reduction in your credit limit could, however, be just as distressing – particularly if you’ve lost income as a result of the pandemic and you’re depending on your card to help make ends meet until you find your next job.”

The CardRatings survey also found that people who have lost income are more likely to have made changes in their credit card spending than those who haven’t:

  • Increased credit card spending: 23% of people who’ve lost income vs. 16% of those who haven’t
  • Decreased credit card spending: 45% of people who’ve lost income vs. 31% of those who haven’t

As with many economic realities resulting from this pandemic, the closure of a credit card or even the reduction of a credit limit can have long-lasting effects on a person’s credit score and, by extension, on their future loan and credit card applications.

“Reduced credit limits impact your credit utilization – that’s the amount of credit you’re using compared to the amount available to you,” Lowery explains. “When a bank reduces the limit on a card, you lose some available credit and your percentage being used can shoot up.”

Additionally, Lowery continues, if the closed card happens to be one of your older accounts, you’ve also taken a hit in terms of length of credit history, another factor that impacts your credit score.

What do you do when a bank reduces your credit limit

The old adage, “You don’t know until you ask,” is one to take to heart when a bank unexpectedly reduces your credit limit (or closes your card, for that matter).

CardRatings’ survey revealed that about 9% of respondents without any change in their income had experienced an unexpected credit limit reduction; these individuals, in particular, should certainly talk with their bank about the reduced limit.

“Contact your bank and be prepared to discuss with them your record of spending on the card as well as why you anticipate needing that higher credit limit,” Lowery recommends. “Banks want to know that you are going to make them money with processing fees, so the more frequently you use the card, the better.”

Along those lines, if the reduction occurred on a card you don’t use frequently, bring it back into your regular spending rotation so you have some recent history to point to when you call the bank and request that the reduction be reversed. Lowery cautions, however, to remember that you need to pay your bills on time, every time as you now have lower available credit and you don’t want your utilization to increase.

Another option is to make up for the reduction by requesting an increase on one of your other cards that you do use regularly. This is a particularly good option if you have cards from a different bank that hasn’t reduced your limit. 

There are also steps you can take to decrease the likelihood a bank will reduce a limit or close your account.

  1. Regularly use all your credit cards. Banks are more likely to reduce limits on or close accounts that are dormant. Consider putting a small automatic payment on your card so that you have a history of activity on all your cards.
  2. Regularly assess your credit card needs. As your job situation, lifestyle or living circumstances change, it’s likely your credit card needs will as well. Take stock of the cards you have and those that might be a better fit anytime you have a significant life change. If you no longer need a high annual fee travel card, consider asking the bank to downgrade that card so you maintain the account history and credit limit, but on a card without an annual fee.

CardRatings.com commissioned Op4G to conduct a national survey. The sample size was 800 people, with half reporting having lost income/jobs since March 1, and responses were collected June 23-30, 2020. The margins of error for all non-multiple choice questions ranged from 2.77%-3.46%.

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