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Money Fix: Use cards smartly to avoid limit slashing, account closing

Using credit cards smartly helps prevent limit slashing

Using credit cards smartly helps prevent limit slashing or getting your account closed, experts say. Credit: Getty Images/iStockphoto/fizkes

There’s nothing like having a rug pulled out from under you when you’re barefoot and the floor is cold. When it comes to credit cards in the time of the coronavirus pandemic, such is life.

A recent survey by CompareCards.com found that three in 10 cardholders are relying heavily on their credit cards and in fact using them more than ever since the start of the pandemic. Yet, 25% of credit cardholders polled saw their limit slashed and/or their account closed altogether in the past 30 days.

What gives?

“Credit card issuers are reducing people’s limits and canceling cards to reduce balance sheet risk and lower their overall liabilities. Since many people are postponing monthly payments due to forbearance allotted during the pandemic, credit card companies have begun to cut available lines of credit to consumers,” explains Adem Selita, CEO of The Debt Relief Co. in Manhattan.

An uncertain job market impacts credit card issuers’ underwriting, and because there are so many unknowns with unemployment fluctuating so much, issuers are finding it difficult to assess risk and are tightening their lending as a result, says Gannesh Bharadhwaj, general manager of credit cards at Credit Karma in San Francisco.

In other words, they’re looking out for No. 1. So where does this leave you?

Who’s a target?

Borrowers who are likely to be impacted the most by these stricter lending requirements are subprime (those with credit scores between 580-619) and near-prime borrowers (those with credit scores between 620-659), according to Bharadhwaj.

“Although these borrowers pose the biggest risk for lenders, those with good credit scores may also be impacted because of the lack of visibility into unemployment. Credit bureaus do not score on income so not knowing if a consumer has cash flow creates a blind spot for issuers,” says Bharadhwaj. 

But those in good standing could also see their credit limit remain the same or even increase so card companies can offset risky customers who have become delinquent or have ballooning balances, points out Bharadhwaj.

What to do if you get cut or canceled?

Call your lender and ask for the reason your card was closed or had a limit reduction. “Ask that your credit limits be reinstated. But there’s no guarantee that the issuer will reopen the card or restore the limit. Many credit card agreements include provisions that issuers can close or decrease the limit at their discretion,” says Leslie Tayne, a debt resolution attorney with the Tayne Law Group in Melville.

David Bakke, a credit card expert with DollarSanity.com says his credit score is in the 800s, he’s never missed a payment, but his spending limit was recently reduced. “At this point anyone is at risk,” he said.

If you ask to have your spending limit restored or your account reinstated, you might need to show proof you're still a good credit risk. “You can explain to them your job is steady if that's the case, and even forward pay stubs if necessary. Or, ask them exactly what they need as far as proof,” says Bakke.

Be proactive

Cards that are rarely being used or are close to inactive are most likely to be canceled. To avoid this, make a small charge on the cards you want to retain. “This will prevent the line of credit from being closed out, since card issuers are closing out cards that are ‘essentially’ inactive,” says Selita.

Consider too, making that small charge a recurring one, like the subscription for a streaming service, and then set up autopay so your bill is paid on time every month, suggests Sara Rathner, a credit card expert with NerdWallet.com

Make it tougher for them to cut you. Lee Kendrick, founder of CreditUturn in Lexington, Kentucky, says while even those with good credit might get dinged in these extraordinary times,  it won’t hurt to go the extra mile.

“Be responsible in managing your balance-to-limit ratios," Kendrick says. "By keeping your balances below 30% and even less than 10% of your credit limits, along with paying more than your minimum payments on or before your due date, you could remain untouched.”

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