Are Credit Card Companies Lowering Limits?

Overview

Credit card companies are lowering limits on many customers. This includes quite a few customers who have fairly high credit limits. The trend of tightening credit will likely continue for the foreseeable future. More and more credit card holders will see their credit limits shrink and their interest rates will go up.

History

The years of easy credit resulted in credit card companies being strapped for cash in addition to an increase in defaults. In an effort to minimize more losses, the credit card companies are scaling back credit limits. Even cardholders who have excellent credit and have never made a late payment are likely to see their credit limit decrease and their interest rates increase.

Significance

The significance is important because reducing credit limits reduces buying power. Individuals frequently rely on their credit to get them through emergency situations including medical emergencies, surviving after the loss of a job or taking a last-minute flight. Now, more and more Americans will find their buying power is reduced and their ability to survive an emergency will be much more difficult. This will affect the economy, too, because it means less money that could potentially be spent.

Benefits

The benefits in this situation are twofold. First of all, the credit card companies are scaling back and reducing their losses. By doing this it is possible they won't have to increase interest rates or at least not as much. Because of this the consumers will benefit, albeit they might not feel like it's too much of a benefit. On the other hand, consumers will benefit by not getting in too deep. If they have a lower limit that means there is less money they can spend. Sure, this can cause problems too, but at least it reduces the chance of the borrower getting in too deep in debt.

Considerations

Those who have credit cards should consider paying down their debt as much as possible. Between the potential lower limits and higher interest rates, people may find their credit scores plummeting. This could have a big impact on people and their purchasing power, so it's important for credit card holders to take the economy into consideration and react accordingly.

Effects

The biggest effect of the credit card companies lowering credit limits is that card holders will find their debt to available credit ratio changes for the worse. Since credit scores take into consideration how much credit you are using of your limit, then credit scores will go down because of this. People who have lower credit limits may find themselves going over the limit and being charged over the limit fees, which could also negatively impact their credit scores. While the effect may be positive for the credit card companies, the consumers will experience more potentially negative side effects.

Are Credit Card Companies Lowering Limits? by moneyearningclub.com