If the spending limit on your credit card suddenly shrank, you’re not alone.
Some banks have started to decrease consumers’ credit limits as the job and income losses spurred by the global coronavirus pandemic has increased the possibility that people could miss their monthly payments.
Synchrony Financial, the company that backs many credit cards offered by retailers, is taking a closer look at card holders’ ability to repay amid the virus outbreak.
“We’re continuing to utilize internal and credit bureau triggers to dynamically reevaluate the customer’s credit worthiness to manage credit exposure,” Brian Wenzel, Synchrony’s executive vice president and chief financial officer, said during an earnings call last week.
Other banks also said that they were evaluating borrowers’ credit limits at this time.
Banks typically reduce a customer’s credit limit to minimize risk, said Matt Schulz, chief credit analyst at LendingTree.
“When the economy goes bad, all the calculus changes,” Schulz said. “Because people’s financial situations can literally change overnight, unused credit lines equal major risk.”
In other words, banks are worried about what could happen if someone makes a lot of purchases with their credit card, loses their job and misses payments because of their lack of income.
When banks do cut credit lines, they don’t need to give people much warning either. “Most people don’t realize how much freedom credit-card issuers have to cut limits or even cancel cards without warning,” Ted Rossman, industry analyst at CreditCards.com.
For most changes made to a card, banks are required to give consumers at least 45 days of notice. That isn’t the case when it comes to changing the credit limit — unless the reduced credit limit will lead to a cardholder facing overdraft fees.
Read more of the article, along with tips to protect your credit limits, here.
Your Bank Could Lower Your Credit-Card Limit — What to Do If That Happens
Some banks have started to decrease consumers’ credit limits as the job and income losses spurred by the global coronavirus pandemic has increased the possibility that people could miss their monthly payments.
Synchrony Financial, the company that backs many credit cards offered by retailers, is taking a closer look at card holders’ ability to repay amid the virus outbreak.
“We’re continuing to utilize internal and credit bureau triggers to dynamically reevaluate the customer’s credit worthiness to manage credit exposure,” Brian Wenzel, Synchrony’s executive vice president and chief financial officer, said during an earnings call last week.
Other banks also said that they were evaluating borrowers’ credit limits at this time.
Banks typically reduce a customer’s credit limit to minimize risk, said Matt Schulz, chief credit analyst at LendingTree.
“When the economy goes bad, all the calculus changes,” Schulz said. “Because people’s financial situations can literally change overnight, unused credit lines equal major risk.”
In other words, banks are worried about what could happen if someone makes a lot of purchases with their credit card, loses their job and misses payments because of their lack of income.
When banks do cut credit lines, they don’t need to give people much warning either. “Most people don’t realize how much freedom credit-card issuers have to cut limits or even cancel cards without warning,” Ted Rossman, industry analyst at CreditCards.com.
For most changes made to a card, banks are required to give consumers at least 45 days of notice. That isn’t the case when it comes to changing the credit limit — unless the reduced credit limit will lead to a cardholder facing overdraft fees.
Read more of the article, along with tips to protect your credit limits, here.
Your Bank Could Lower Your Credit-Card Limit — What to Do If That Happens
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