What Consumers Should Do if Their Credit Limits are Cut

Limits on credit cards cut being cut

Studies done by Consumer Action, a consumer advocacy group, are showing that almost one in five consumers have had limits on their credit cards cut. Almost 20 percent of these customers are showing they have nearly maxed out their cards as a result. Experts are predicting that limiting credit is going to “become severe” in the near future. Meredith Whitney, bank analyst for Oppenheimer and Co., stated that she predicts “card issuers will cut credit lines by $2 trillion-plus over the next 18 months.”

Some triggers for limit cutting are consumer’s credit scores falling, late payments or account balances that are close to the maximum credit limits. Although Federal law requires that companies notify the consumers when that cut is going to happen, there is only a 15-day window they must adhere to. If a consumer finds themselves suffering a slashed limit, there are still some things they can do.

Some options to try

  1. Issue a formal, but reasonable, complaint to the company. Curtis Arnold, of Cardratings.com, stated, “The technique of complaining in this current environment is particularly effective because the card industry has a black eye right now.” Arnold estimates that every lost customer costs a credit card company about $300 in marketing fees to find a replacement. He advises consumers to speak to the manager. In particular, if they have a good history and good credit, a complaint may work.
  2. Balance transfers may also help. Bankrate.com is a website where consumers can look up various fees and charges for transfers, based on their credit ratings. Consumer Action’s Linda Sherry says, “If you have excellent credit, you may be able to get a balance transfer deal to another credit card with a higher limit.” Using balance transfers to their advantage, is a great deal for consumers. Especially if they can transfer to 0 percent or low-interest credit cards.
  3. Consumers also should try looking for credit cards beyond the big-name banks. Bankrate.com has a credit card lender database that includes a wide variety of banks who are all competitively seeking business. Consumers are sure to find a deal here. Of course, the options will be decided by their credit scores, but even consumers with lower scores have choices. Also, many smaller banks market via the U.S. Postal Service. Consumers should check out local offers from banks. According to Tim Kolk, managing partner of Brookwood Capital, “I think someone who is having a little trouble with a major national credit issuer would be well served to go to their local banks and credit unions. … Historically (smaller banks) have had better credit performance with fewer defaults than big credit card issuers.”
  4. Consumers need to learn to use their credit more wisely. Curtis Arnold, of Cardratings.com stated, “The bottom line is, companies who issue credit cards are tracking our spending habits, our debt, etc. Consumers don’t need to freak out about that, but we do need to proactively manage our credit more than ever.” If a lending company lowers a consumer’s limit, it means they are looking at that consumer as a potential credit risk. If a consumer finds their limit slashed, they probably need to do some restructuring of their credit habits. Whether that means paying a larger portion or paying on time more often, they need to be committed to getting their credit under control.

Credit after the new law

Since the new law, credit cards will be monitored and consumers will be protected. However, in response many lending companies are cutting limits to mitigate their loss. There are things consumers can do to fight the slashed limits, in particular if they have kept up on their payments and have good credit ratings. They shouldn’t just sit idly by though. Restoring credit limits may be just a phone call away.

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