Credit Card Companies Continue to Cut Credit Limits during Quarantine

Credit Card Companies Continue to Cut Credit Limits during Quarantine

August 3, 2020         Written By Heaven Speirs

Credit card issuers began cutting card limits back in May, and a new study shows that they are continuing this trend through the summer. The survey shows that approximately 70 million cardholders have experienced a credit limit decrease in the last 60 days, and 25% of cardholders have had at least one card canceled altogether.

 

Why Are Card Issuers Decreasing Credit Limits?

Featured Fair Credit Card

Top Features:

All credit types welcome to apply!

There are several factors contributing to the credit limit decrease. The majority of survey participants (89%) said that they were notified of the upcoming decrease, and the most common reasons were credit score drops, missed payments, or card inactivity. Limited card activity is expected during quarantine because Americans are rationing their funds and dealing with income loss. Missed payments may also be the result of limited income, resulting in a lower credit score.

With that in mind, 15% of cardholders said they were not given any reason for the decrease. In April, card issuers were cutting credit limits without warning, which stifled consumers’ spending abilities and potentially hurt credit scores. This is because credit utilization is a key component of a credit score – how much is owed vs. how much credit is available. If the available credit is lowered, the credit utilization rate increases, thereby hurting the cardholder’s credit score.

 

Should I Cancel My Credit Card Because of a Limit Decrease?

If your credit limit drops with or without warning, that doesn’t mean you should cancel it. In fact, doing that may hurt your credit even more than the reduced limit. Let’s say you owe $2,000 in total credit card debt. You have two cards, each with a $5,000 credit limit. Your current credit utilization rate is only 20%. If one card’s limit drops to $3,000, your credit utilization rate is now 25%. Cancel that card altogether, and the rate jumps to 40%. It also provides even less emergency funding for times of need.

Also, consider that canceling the card may hurt your length of credit history. That is a crucial credit scoring factor. Every month that goes by with the same credit card is another positive mark on your credit. The lengthy history also shows creditors that you are a long-term customer, not a card churner. This improves your chances of getting approved for your card of choice.

 

How to Increase Your Credit Limit

If your credit card issuer has dropped your credit limit, you may not have to live without it for long. Wait a few months for your score or card activity to increase, and then contact the credit card company to ask for a credit limit increase. Nearly 80% of cardholders receive a credit limit increase just by asking. Until then, use your credit card for your daily purchases and pay off the balance each month.

You could also try increasing your card limit for a card that did not have a limit increase. If Card A’s limit dropped by $1,000, you may be able to get a $1,000 limit increase for Card B. This balances your credit utilization rate and opens the emergency funds up once more.

Looking for a new credit card? Low Cards is here to help! Check out our NEW credit card matching tool to find the perfect card for your personal needs.  

 

The information contained within this article was accurate as of August 3, 2020. For up-to-date information on any of the terms, cards or offers mentioned above, visit the issuer's website. Many of the offers on this article are from our affiliate partners, and LowCards.com may be compensated if you take action with any of our affiliate partners.

Review LowCards.com Editor’s Top Cards!

2020 Top Credit Cards by Category
Featured Fair Credit Card
Reflex Mastercard® Credit Card
EDITOR RATING
Featured Fair Credit Card
Reflex Mastercard® Credit Card

Applying for this card will securely direct you to the issuer's website.

Top Features: All credit types welcome to apply!

Featured Secured Card
Assent Platinum 0% Intro Rate Mastercard Secured Credit Card
EDITOR RATING
Featured Secured Card
Assent Platinum 0% Intro Rate Mastercard Secured Credit Card

Applying for this card will securely direct you to the issuer's website.

Top Features: Intro APR Offer on Purchases, No Annual Fee For First Year

Featured Bad Credit Card
First Digital NextGen Mastercard® Credit Card
EDITOR RATING
Featured Bad Credit Card
First Digital NextGen Mastercard® Credit Card

Applying for this card will securely direct you to the issuer's website.

Top Features: Reports to all three credit bureaus, perfect credit not required for approval

Featured Good Credit Card
Petal® Visa® Credit Card
EDITOR RATING
Featured Good Credit Card
Petal® Visa® Credit Card

Applying for this card will securely direct you to the issuer's website.

Top Features: No fees whatsoever. No late fee, international fee, annual fee, or any-other-kind-of-fee, fee


heaven

About Heaven Speirs

Heaven Speirs is a contributing writer for LowCards.com. She remains up-to-date with the latest developments in the credit card industry and the financial sector as a whole. Heaven has over 10 years of experience in online journalism, the bulk of which has been focused on personal finance. Heaven attended Oklahoma State University, where she discovered her talent for research and content creation. In her spare time, Heaven enjoys painting, playing poker, and spending time with her husband and three dogs.