LendingTree Survey Finds Credit Limit Cuts Still Common in 2021

Last year, as many Americans saw their finances affected by the pandemic, anecdotes emerged suggesting that some banks were cutting credit limits and even closing accounts of certain customers. This was later borne out in data, with Bloomberg reporting that issuers cut customer credit limits by a total of $99 billion in 2020. Now, despite some economic turnaround, a survey by LendingTree finds that a significant number of respondents are still seeing their limits trimmed during the first few months of this year.

According to a survey of 1,013 cardholders, nearly one-third claimed that their credit card limit had been cut or that their credit card account had been closed sometime in 2021. In particular, Millennials and Gen Zers were more likely to report such involuntary changes. Of those who did see their credit limit decreased, 54% said the adjustment amounted to more than $1,000 — with 30% reporting cuts of $5,000 or more. Similarly, 59% of those who saw their accounts closed against their will previously had credit limits above $1,000, including 31% who had $5,000+ limits prior to the account’s closure.

While these results suggest that credit limit decreases are still occurring, LendingTree does note that they are happening much less frequently when compared to the highs of last year. The site reports that, during March and April of 2020, approximately 1.7 million consumers per day were enduring involuntary limit changes or account closures. This later dropped to 1.1 million per day between May and July. Meanwhile, between January and April of this year, the rate was nearly half that, coming in at 558,500 per day.

Unexpected reductions in credit limits can impact consumers in a few notable ways. Most obviously, some cardholders may have relied on their credit to help pay for expenses (especially during a pandemic when their finances may have been in upheaval). Additionally, regardless of whether consumers technically “needed” their full credit limit, cuts could still have a negative effect on their credit score. That’s because credit utilization rates heavily factor into FICO credit scores. Thus, if a consumer regularly puts $1,000 on a card that saw its limit go from $5,000 to $2,000, their utilization would increase from a healthy 20% to a less attractive 50%.

Although card issuers can typically cut credit limits for any reason, they may be more likely to target some accounts over others. As LendingTree’s Chief Credit Analyst Matt Schulz explains, “Unfortunately, there’s no foolproof way to keep an issuer from closing your card, but there is a simple way to improve your odds: Use the card more.” Schultz went on to warn, “It’s also important to understand that banks don’t just close dormant accounts and slash credit limits during bad economic times. It can happen even in the best of times, so keeping those cards in use is a good idea at any time, as long as you do it wisely.”

Ultimately, while the situation has seemingly improved since last year’s slashes, it’s important for consumers to realize that credit issuers may not be done cutting credit limits just yet. Because of this, cardholders should be thoughtful about how they utilize each card in their wallet and manage their spending

Author

Jonathan Dyer

I'm a small town guy living in Los Angeles looking to make solid financial decisions. I write for a number of finance websites, including HuffingtonPost and Business2Community. I founded DyerNews.com in 2015 to focus on personal finance and the emerging FinTech markets.

Other Articles by Jonathan Dyer

Robinhood Reveals More Details on Upcoming Retirement Account

After officially announcing plans for retirement accounts during an earnings call last month, Robinhood has now revealed more details about the upcoming feature and opened a waitlist for customers. First, Robinhood Retirement will offer both Roth and Traditional IRAs to users. With these accounts, customers will be able to invest in stocks and ETFs. Additionally, accountholders will be able to craft a custom portfolio and will be able to view...

Discover Announces 5% Bonus Categories for First Quarter of 2023

The popular Discover It card — which features 1% on all purchases as well as a slate of bonus rotating categories each quarter — has revealed what purchases will earn cardholders that 5% bonus starting January 1st. For the first quarter of 2023, Discover It cardholders can earn 5% back on grocery store, drug store, and select streaming service purchases. However, there are a few asterisks to note with this offer....

AllWork Raises $4.9 Million From FINTOP Capital 

A FinTech focused on freelancer payroll has closed a significant early-round investment. This week, AllWork announced that it had raised a $4.8 million round. The Series A was led by Nashville-based FINTOP Capital with no other participants. As a result of the transaction, FINTOP's Chris Haley and Rick Holton will join AllWork's board of directors. Previously, AllWork closed a $3.8 million seed round in 2019, bringing their to-date funding total to $8.7...