Has Your Bank Slashed Your Credit Card Limit?
You probably pay your credit card balances each month (if not, you should). But, have you checked your limits lately? There’s been a huge shakeup recently as card issuers are starting to feel the mounting pains of increasing delinquencies.
Traditionally, you could expect that as long as you kept paying your bills on time and maintained your account in good standing, your credit line would remain stable, if not increase. That’s beginning to change.
A lot of people are opening their statements and discovering their card limits have been slashed to a fraction of what they once were. The reasons may startle you.
New Ways of Assessing Risk
Rather than waiting for customers to default on their accounts, card issuers are being proactive in identifying potential problems. They’re looking more closely at how and where customers are using their cards. Instead of relying solely upon their credit scores and payment history to judge their ability and likelihood to pay their bills on time, some card issuers are now digging into customer buying behavior, where they live, and what they do for a living when deciding how much credit to extend.
According to Business Week, many customers of CompuCredit have discovered that using their credit card to pay for a marriage counselor could result in having their limit cut in half. Bars and pool halls are on CompuCredit’s radar, too.
The Wall Street Journal has reported that major card issuers like J.P. Morgan Chase, Bank of America and Discover have also begun lowering some customers’ limits. While they are reluctant to divulge how they are judging their customers’ creditworthiness, at least one pattern has emerged: anyone that can be associated with the housing meltdown is being put under the microscope. For example, anyone living in areas hardest hit by the housing downturn, or working in industries associated with housing, such as construction and finance, could be seeing their credit limits cut.
What to do?
For those who run a small business that depends on credit, this latest news underscores the importance of not relying on a single credit card issuer. If you can diversify your cards, you’ll decrease the chance that an unexpected credit line decrease will cripple your business.