Coronavirus and your finances: What to know if your issuer cuts your credit limit

During the Great Recession, 20 percent of card companies cut credit lines for customers with prime scores.

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While Americans navigate the financial challenges that have been brought on by the coronavirus pandemic, some people are finding that their credit card companies are cutting their credit limits.

Synchrony Financial, for example, said during its first quarter earnings call this week that it continues to “dynamically reevaluate the customer's credit worthiness to manage credit exposure.”

Discover Financial Services said during an earnings call this week that it has significantly tightened underwriting standards for new card and personal loan accounts, while it has also pulled back on balance transfer offers and line increases.

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This is a popular strategy during recessions and other periods of economic uncertainty because it helps companies reduce the risk that customers won’t be able to repay their debt.

During the Great Recession, 20 percent of card companies cut credit lines for customers with prime scores and 60 percent did so for customers with subprime scores, according to data from CreditCards.com.

“Most people don’t realize how much freedom credit card issuers have to cut limits or even cancel cards without warning,” Ted Rossman, an industry analyst at CreditCards.com, said in a statement. “Banks are once again very nervous about the state of the economy and the job market and they’re pulling back on their risk exposure.”

And coronavirus has resulted in skyrocketing unemployment. Since the national lockdown began, more than 26 million people have filed for unemployment. Due to the unprecedented nature of the pandemic, the timetable for economic recovery is unclear.

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Here are some things to be aware of if you find yourself in this situation, as compiled by the experts at LendingTree:

Notification

Though companies are generally not required to notify you when they lower your credit limit, if the company reduces the limit lower than the balance on your card, you will not be charged an over-the-limit fee until 45 days after you are notified of the limit reduction.

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Will your credit be impacted?

It is likely that if your issuer reduces your limit your credit will be impacted because you will be using a higher percent of your available line of credit – so your credit utilization rate increases.

However, LendingTree says you can minimize the damage by asking for a credit-line bump on a different credit card (with another company) or getting a new credit card altogether.

How to prevent this from happening to you

If you can afford to, you can use the card more often. Inactive cards are the most likely targets for credit limit cuts or all-out cancellations.

You could also switch over recurring subscriptions, like Netflix or Spotify, to a card you don’t use very often in order to keep the card active.

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