It’s not just the housing market who is tightening the reigns of their credit lending…the current trend among credit card companies is to reduce credit limits. You know the credit card companies generally change the rules of the game anytime after sending you your credit card. Typical sneaky tricks include increasing interest rates, add rules of arbitration, increasing late fees - all of which is perfectly legal. Be honest now, do you read the entire text of your credit card statements and updates each time when they come in the mail? I admit that I don’t.
The latest trick seems to be lowering the credit limits on your cards, apparently in an effort to reduce the risk to the card companies. If you have a $10,000 limit, a credit card company may want to reduce their risk to $5000, cutting your credit line in half. They will not decrease your credit limits, though, in such a way that would put you over the limit. For example, using the $10,000 credit limit above, if you are using $6000 of that line, they would not reduce your credit limit to $5000. They might reduce it to $6000, though which would put you at 100% of your credit line utilization.
Increasing your credit line utilization is one of the fastest ways (other than big negative marks like bankruptcies or judgments) to decrease your credit score. To maintain high credit scores, the overall guideline in credit card utilization is no more than 33% (preferably 25%, though). Can you see how a sudden 50% reduction in available credit can play havoc with the average consumers’ score?
Naturally, the credit card companies are defending their moves by saying they are acting in the best interests of the consumer. According to a MSNBC article:
“Business conditions continue to weaken in the U.S. and so far this month we have seen credit indicators deteriorate beyond our expectations,” American Express’ CEO Kenneth Chenault said in a statement.
That’s why card companies including Washington Mutual, HSBC and Wells Fargo are lowering their credit limits, according to data from the consulting firm Institutional Risk Analytics.
One of the oft-ignored, but critical responsibility of the consumer in carrying credit cards is to at least make an effort to know what the current terms and conditions for their credit. The easiest way to know if your credit line has been lowered? It’s not in the fine print - the basic credit card statement lists the credit limit prominently, often right next to the current balance and payment due. Next month, when you receive your credit card statement, make sure you take a minute or two to take note of your credit line. Should you find your limit lowered, call your credit card company and see if you can convince them to increase it back to its old limits. This shouldn’t be a problem if you’ve been a good customer.
Has this happened to you? Tell us by leaving a comment!
Popularity: 28% [?]
21 responses so far ↓
1 Erika // Jul 7, 2008 at 11:01 am
I was just checking my fiance’s credit card balance online to make a payment and noticed his limit was cut in half. But he only had a $1000 limit to start with! He doesn’t have great credit so this was a young adult card to help build it up. All his payments were made on-time and there was no reason this should have happened. How is $500 really going to save them from any major problems? It just screws with the consumer and turns them off from continuing to use the company!
2 Kristy // Jul 7, 2008 at 12:36 pm
I couldn’t agree more….
3 David // Jul 22, 2008 at 1:32 pm
Just happened to me, I found out when I took a group out for dinner and it was declined
4 Kim // Aug 19, 2008 at 7:14 pm
I received a letter in the mail on Friday from American Express stating that they were lowering my credit limit from #3500 to $500 because they feel that I am a risk. That would probably be because I have balances on my other cards and they are a little higher than they really should be, but not close to my credit limit. Here’s the real kicker, my AmEx card had a zero balance at the time that they lowered my credit line. I had only used the card twice and had paid off the balance each time I used it. The other thing is I pay all my credit cards on time and I pay more than the minimum payment each month. The fact that a “respectable” credit card issuer could do this to their customers is just unethical. After all, couldn’t anyone that they issue a credit card to, in this given economy, be considered a credit risk? Anyone could experience job loss. Maybe they should just get out of the business of issuing credit cards. I sure would hate for Un-American Express to have to take that risk.
5 Voice of Reason // Aug 27, 2008 at 10:16 am
I just don’t understand how this is is legal. In any other business it would be called “bait & switch”. Nothing in my credit profile changed, yet AMEX cut my credit limit by $500. I’m all for holding folks responsible for bad credit decisions (e.g, buying houses they couldn’t afford without ridculous mortgage tactics, maxing out on their cards, etc.), but my record with AMEX was spotless! The only other little dings in my credit were there when they originally issued the card. I plan to pay them off and just not use them now. I thought I would be sick when their letter notifying me of the change regarded me as a “valued customer”. Its frustrating to work so hard to earn a good credit score only to have some big corporation come along and throw a monkey wrench in it!
6 credit crunch // Sep 8, 2008 at 3:42 am
You’re not being singled out…you’re paying for the bad credit policies of lenders and other users of credit. The companies let the credit taps run like water, and people maxed their cards and defaulted, in far greater numbers now than ever before. Instead of complaining about what bad sports the credit companies are being by reducing your credit line,you should be thanking them for a long-overdue sanity check on lending and spending practices in America. People worry that they’re being unfairly treated because they have “good credit”…does anyone remember that credit cards didn’t exist 50 years ago? What do you think people did then when they went out to dinner? C’mon people, we’ve all been on a free ride that is at its end, and trillions of dollars will have to be paid by you, because of reckless easy credit.
7 lower bills // Oct 14, 2008 at 2:01 pm
think of it this way - the credit companies are in a fix too -
How can they make use of the current “crisis” - lower your credit line and then make money off the interest payments - the monthly interest is a function of the available credit line and the actual used credit - greater the percentage of “debt to credit” ratio = Higher fees;
Also, you will need to look at the performance of the company as a whole - aka - stock price;
If you analyze the credit card companies only a few of them still come out good on their fundamentals - just an observation on American Express: AXP
From Jan ‘06 till Nov ‘07 - (+/-) 10% appreciation
From Nov ‘07 till date - (-) 50% depreciation - most of this during the last 2-3 months
Source: Google Finance / MSN Money etc.
So for their “unfortunate” and complex financial mistakes we are paying the price - even though we have oops sorry “had” “STELLAR” credit
–> don’t know how many of us will still have after these “Sorry to inform … after careful review” mails 
As each of the lenders “talk” to one another - based off the credit score - the only way is to “really” cut down the plastic and use paper in our lives and follow Buffet - similarities / analogies made from various readings on the “ORACLE of Omaha”
> don’t loose money => don’t end up paying fees
> don’t get into what you don’t understand
> re-evaluate your position => differentiate between want and need
> buy cheap => lower your bills / expenses - “Google” and find deals
> don’t make hasty decisions => think long term take small steps - don’t worry about small spikes
> have fun all the way
financial freedom is a real peace of mind. hope to see that someday. Wishing you all the very best in future months
Disclaimer: The information above is provided solely for informational purposes and references made to third parties are based on information that is generally available in the public marketplace and is believed to be reliable, but are not guaranteed as being accurate. Readers should not regard it as a substitute for the exercise of their own judgment and do not accept no liability whatsoever for any loss or damage of any kind arising out of the use of all or any part of this material. The comments are an expression of opinion. It is recommended that you consult with a licensed, qualified professional before making any investment decisions
8 Matt // Oct 23, 2008 at 7:06 pm
Capitol one just did that to me, Lowered my credit limit for no reason, I have great credit,never missed a payment with them in 5 years. Pay them $500 per month every month. Min.payment is $185. Called them to complain and they did nothing, just said that they can. well ofcourse is dropped my credit score by 30 points. they took a $20,000 limit and droped it $10,000. and they cant explain why. How can they get away with that..
9 nellie // Oct 29, 2008 at 5:32 pm
This is sad when people are bilding their credit and the drop the limit. It really hurts our credit score so you won’t be able to get credit in the future. I say we pay them off and when things get better don’t use them, boycott the stores! Lowes did it to me I only owed 255.00 and the dropped my limit to 260.00. I don’t pay late and dont max my card. This should be illegal, when you are hurt because they choose to make it look like you max your card. Boycott GE money bank.
10 Suka // Oct 30, 2008 at 1:08 pm
This just happened to me with HSBC. I’ve been doubling up on my payments trying to get my card balance down to get my credit score up as quickly as possible. HAHA and right when I’m almost under %50 of my limit they chopped it! HAHA now I looked maxed out again. I guess when I get it paid down this next time, they’ll chop it again! I’ve been calling customer service and have gotten no where. They all agree it’s absolutely ridiculous though and shouldn’t happen. Go figure…
11 Julie // Oct 31, 2008 at 1:50 pm
Again, the responsible people get penalized for the irresponsible ones and coporations. When are we going to be rewarded for our honest, hard working efforts when we pay our debts without any hidden agenda’s? This should be illegal to punish the good for the bad in this country! Our limit was cut in half also to no fault of our own. American Express did give us a $600.00 additional limit before we max out our set limit. How nice of them. I could pay it off but want to allow for job loss possibility etc. and why should I help them get out of the red when they don’t give consideration to the worthy paying customers. GRRRRR!
12 Dan // Nov 1, 2008 at 10:20 am
I have perfect credit. Never had a single late payment ever! Had various mortgages in the past always paid on time and paid in full and currently don’t own a house. I have been an American Express customer for 10 years with perfect payment record. I run a business. Yesterday American Express lowered my business line of credit from $30,000.00 to $1,000.00. This is a joke!!!! I used that line on a regular basis 10K to 20K and paid them back promptly. I think at American Express they completly lost it. They should just close business and go home.
13 Gunther // Nov 12, 2008 at 5:01 pm
Much like the rest of you, American Express reduced my credit limit from $10,000 to $2200.oo (my balance is $1`750.00). In the last ten years I’ve never once missed a single payment, not only on the American Express account but the others as well and more often than not, paying at least double the required minimum payment.
I ran up some debt over the last few years with a back injury resulting in numerous doctors’ bills, but have faithfully been paying down everything since then with my over all objective of not having any debt on any cards shortly.
However, since American Express has decided to play dirty, I will pay off all my other debt first, before tackling the remaining debt i have incurred with these “great” folks.
I just found out yesterday about the government’s plan to designate American Express a bank and bestow upon them taxpayer’s money. I feel double raped by this scummy bunch. They’ve thrashed my credit score and are no going straight for my wallet.
Perhaps some form of class action complaint or litigation can be lodged against these thieves, and others like them, from carrying on in such a reckless and immoral manner that has such terrible consequences for undeserving victims of their greed!
Perhap
14 Heather // Nov 14, 2008 at 1:37 pm
I’m glad I have something to warn me that I am within $XX of my credit limit. I used to have a $6500 credit limit on a GE Money Bank credit card for Sams Club (with a zero balance) and then received a notice that I was within $1000 of my limit. I haven’t charged on that card in a couple of months and don’t carry a balance, so I never saw a statement saying they were reducing it to $1000. All I got was a sucker-punch thinking someone stole my identity and used my credit card only to find out that the credit card company had killed my credit limit to 15% of it’s original size!!! Where does that come from?
15 Kristy // Nov 14, 2008 at 2:34 pm
I’ve had 4 people tell me the AMEX cut their credit limits in half in the last week. Wow.
16 WK // Nov 15, 2008 at 11:44 am
AMEX is wrecking credit scores by lowering credit limits for no valid reason. They will claim it is due to an item (s) on a credit report that do not exist.
17 JC // Nov 17, 2008 at 7:11 pm
GE Money Bank is doing the same regardless of payment history and useage, I just told them that instead of dealing with them I am sending notice to the company that uses them I will no longer be a loyal customer because of GE Money Bank and how they treat people. My cards never have a balance at the end of the billing cycle they are paid off in full, Yes I can get by without using a card, I can pay cash, not a problem, I just use the cards to track expenses for business related things. I’m done with GE Money Bank and more than a few companies use them and I just won’t shop at those places anymore when they ask me why I’ll tell them exactly why!
18 Robert // Nov 19, 2008 at 8:06 am
I had an American Express card with a 19,000.00 limit. Last year I charged over 50,000.00 on the card and paid the balance in full each month. This year I have averaged 2,200. per month in charges and always paid the balance in full each month. Since 1997 I have never carried a balance forward to the next month. I just received a letter reducing my credit limit to 1,600.00. At the time I had a 1,489 balance leaving me available credit of 111.00. Within a few days I had 3 automatic paymenst rejected. My credit score is 774. What are they doing.
19 Kathy // Nov 23, 2008 at 12:05 pm
GE bank did the same thing to me for no reason. They lowered it to my exact balance of what i owe. Im wondering now if as i pay it off they will lower it again to my exact balance. I too have automatic payments and are wondering how they can do this.
20 Tammy // Nov 24, 2008 at 10:18 am
21 Jeff // Nov 24, 2008 at 7:08 pm
I have one account through GE Money Bank that went from a 19% interest rate to a 31% interest rate after ONE late payment (coinciding with receipt of emailed statements stopping). Needless to say, I disputed the balance and informed all 3 of the credit reporting agencies–resulting in the account being placed for collections with TWO different agencies (including Mann-Bracken). My credit limits with 2 other GE Money-managed stores (JC Penney and Lowe’s) were recently rolled back as well. I’ve informed both retailers that they’ve lost my business as a result.
Leave a Comment