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