Banks Canceling Credit Cards, Cutting Limits
If you haven’t used a card in awhile, make a small purchase with it to keep it open. It’s good for your credit score.
Banks are pulling back on their risk exposure by cutting credit card limits or canceling cards altogether, says Ted Rossman, industry analyst at CreditCards.com. As a benchmark, consider that during the Great Recession, the October 2008 Fed Senior Loan Officer Survey found 20% of card companies cut credit lines for customers with good credit scores and 60% reduced lines for subprime cardholders.
Unused cards are prime candidates for cancellation, so if you haven’t made a purchase on a card in a while, buy something small and pay it off right away, says Rossman. Keeping cards open helps your credit score because it aids your credit utilization ratio — the credit you’re using divided by your credit limit. Your credit limit could be cut or your card canceled if you get close to your credit limit. If you’re having trouble making payments, let your card issuer know. It will probably work with you on a payment plan (see Milliennials Face Their Second Recession).
During the Great Recession, banks also froze home-equity lines of credit as home prices plummeted. So far, home prices haven’t shown signs of distress, but Wells Fargo and Chase are among large banks pausing HELOC applications.