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Watch out: Credit cards slashing limits during pandemic

Woman's credit line cut in half with no warning
Higher credit limits help improve credit acores
Posted at 2:47 PM, Jul 09, 2020
and last updated 2020-07-09 17:46:04-04

If you get a letter in the mail from your bank these days, there is a good chance it is not junk mail. It may be a notice that your credit card limit has been slashed.

Erin Johnson of Fairfield, Ohio, almost didn't read a notice she received from Fifth Third Bank.

Good thing she did: It was informing her that her credit card limit was being cut in half, from $7,000 to just over $3,000.

"Effective immediately, with no notice, my credit limit was decreased," she said.

The problem: Now her card was suddenly maxed out, as she had almost $3,000 in charges pending.

"It took me from roughly 40% utilization on that card to roughly 99% utilization on that card, and there was really no explanation as to why," she said.

She was furious, sure that her excellent credit score would now take a hit.

Many cards reducing limits

So Johnson did some checking online and soon found out it wasn't just her credit card doing this.

It turns out banks around the country are lowering credit limits to protect themselves during the pandemic, in case someone loses their job and can't pay their bills.

"I was amazed how many people were telling my story on social media, just repetitively," she said.

A report by Marketwatch.com says unused credit lines are a major risk to banks during a financial crisis, so many of them are trimming those lines.

As a result, many issuers are cutting credit limits to all but their best customers.

Fifth Third spokesperson Laura Trujillo told us "the bank regularly monitors the economic and credit risk outlook and at times may choose to reduce lines of credit for some cardholders."

But Johnson says she's been with the same bank 15 years, has never missed a payment and is furious they are cutting her credit line.

"I've been working on my credit for quite some time," she said.

What you can do

If this happens to you, Marketwatch says:

  • You should appeal the decision.
  • If you are still not satisfied, consider applying for a new card at another bank.
  • And if your limit is lowered, make sure you are not maxing out your credit.
  • Pay off part of that card's balance immediately, even transferring it to another card to reduce your debt load on that card.

So watch for bank letters carefully during this pandemic, so you don't waste your money.

FULL STATEMENT FROM FIFTH THIRD BANK:

"In response to the pandemic, we have supported customers by offering hardship assistance programs, including payment waivers and fee waivers. The Bank regularly monitors the economic and credit risk outlook and at times may choose to reduce lines of credit for some cardholders. All of this is undertaken with a balanced approach informed by economic data, which is consistent with legal and regulatory obligations to ensure credit lines match consumers' ability to pay."

We can suggest these tips for credit card users:

  • If you have a card you haven't used in a while, consider buying something small and paying it off. Dormant cards can be considered by some banks for cancellation or credit limit decreases.
  • Review your monthly credit card statements. You should always check (whether you receive your statements by mail or online) to ensure all charges are authorized. But also because this is where banks often notify customers that a credit limit has been decreased.
  • Continue to make at least the minimum required payments each month, and contact your bank if you would like to request a credit limit increase.
  • If you are struggling to make payments, reach out to your bank to see what options you can use.

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Don't Waste Your Money

8:47 PM, Oct 17, 2018

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