Was Your Credit Card Limit Lowered Due To COVID-19? How To Minimize The Damage To Your Financials & Credit

As the COVID-19 pandemic continues its attack across the globe, the financial world has experienced a brutal setback. Small businesses have been particularly affected in this downturn; roughly 70% of owners had applied for Paycheck Protection Program loans by April 9, according to the NFIB Research Center.

With such danger looming overhead, credit card issuers have begun to reign in customers’ spending limits. These decisions can cause headaches for business owners who rely on credit cards: Besides dropping the amount of usable credit available, a lower credit limit can impact all-important credit scores.

Have you been hit by a lower credit limit recently? Or are you concerned about having your card’s credit line decreased in the future? Continue reading to find out how you can help manage your situation and keep your business financially healthy.

Why Issuers Are Lowering Credit Limits & Why It Matters

As mentioned above, several card issuers are known to have tightened credit limits in recent days. The Wall Street Journal specifically attached Citi, Discover, and Synchrony as issuers that have lowered spending limits due to concern over “millions” of credit card customers being unable to pay their bills.

Synchrony Bank is one of the few issuers to publicly comment on lower credit limits, stating that it has been using internal and credit bureau data to “dynamically reevaluate” its customers’ creditworthiness. Discover has also revealed that it is decreasing limits for new customers but added that it isn’t dropping spending limits for current customers directly due to COVID-19. There are also reports that Chase has recently tightened limits for current customers, although the bank hasn’t officially commented on the situation. It’s possible that other issuers have done the same as the above banks or are planning similar tactics for the future.

Such decisions aren’t unprecedented, even if the times we live in are. At the start of the 2008 recession, roughly 20% of banks dropped credit line limits for credit cards of prime borrowers, according to a senior loan officer survey by the Federal Reserve. Sixty percent of subprime borrowers, meanwhile, saw their credit limits tightened during the same time.

Issuers cut down credit limits for a very simple reason: They want to lessen their risk. With the current financial instability swirling around the world, more and more accounts will miss payments and potentially even default. Such situations could wind up being costly for issuers, and lower spending limits can minimize any potential damage.

For you, a lower credit limit on your card can be detrimental to your credit score — a metric that issuers and lenders use to determine how trustworthy of a borrower you might be. You’ll want to have a higher credit score because it can affect your business’ ability to qualify for loans, credit cards, and other sources of credit.

A key component to having a healthy credit score is maintaining a low credit utilization rate, something that can impact up to 30% of your score. Credit utilization is calculated by taking the amount of credit you’re using and dividing it by the amount of credit you have access to. When an issuer lowers the limit on a credit card you have, your credit utilization will, of course, rise — potentially decreasing your credit score.

Credit limit decreases to your card can also happen stealthily. While most credit card changes require 45-days’ notice, no such restriction is in place for credit line changes. That means you’ll need to stay on your toes and take note of any changes to your card’s credit limit.

With all this said, plenty of issuers are working with customers impacted by the pandemic. In fact, some have stated that credit line increases might be a potential solution if you are struggling financially due to the coronavirus.

What You Can Do To Protect Your Financials & Credit Score

If you do find yourself with a suddenly lower credit line on your credit card, there are a few avenues you can take to minimize the damage to your financial health. We’ll take a peek at several of your options below:

Talk To Your Issuer

The quickest fix could be simply to reach out to your issuer and ask them to reconsider your new credit limit. Not all issuers will be happy to reverse a recent change, though. Still, setting out for a credit line negotiation is worth a shot. In some cases, you may also learn that your credit line decrease was due to other reasons not directly related to the financial downturn, such as a change in spending habits or a previously missed payment.

However, do note that with the current pandemic crisis, many issuers’ customer service lines are experiencing high call volumes. In some situations, this means that you may wind up being on hold for an hour or even longer.

It’s also worth a try talking to issuers of other cards you might have. While you might have seen a drop in available credit on one card, a different issuer might consider you due for a credit line increase. Plus, many issuers, such as American Express and Chase, offer the ability to request increases through their online portals. Asking for an increase online can save you the time spent and headache of calling customer service.

Check Your Credit Score Regularly

Something worth getting into the habit of doing even if your credit line hasn’t decreased is checking your credit score frequently. By monitoring your credit score regularly, you’ll be able to grasp where your overall credit health stands.

Luckily, there are a few websites that offer free credit score services. Here are some of Merchant Maverick’s favorites:

• Credit Karma
• Discover Credit Scoreboard
• WalletHub

For a more in-depth look at free credit score-checking websites, read our guide.

As another note, each of the three major credit bureaus (Equifax, Experian, and TransUnion) are now allowing every American to check their credit report once per week for free. Previously, individuals were only allowed to look up free credit reports once per year from each bureau.

While these reports don’t display credit scores, checking them often can give you an overview of what lenders and issuers are looking at when you ask to borrow money. On top of that, regular peeks at your credit report can help stop problems before they get out of hand.

Apply For Another Credit Card

A possible remedy to a lower credit line is simply to increase your overall amount of credit available. You can do this by applying for a new credit card. If you get approved, your new card’s limit will be added to your overall amount of credit available, potentially offsetting the dip from one of your current cards.

Keep in mind, though, that you’ll want to make sure you get a new card that makes financial sense for your business. Some cards carry costly annual fees that won’t be worth your time, while others offer rewards that won’t suit your spending habits. Of course, there are plenty of worthwhile cards out there, such as those that dole out cash back or those with limited balance transfer fees.

You’ll also want to practice proper credit card habits. That means you’ll only want to spend what you can afford, keep your balance to a minimum (unless you find a great 0% APR credit card), and make your payments on time. Just because you have a new credit card doesn’t mean you have free cash at your disposal. Instead, consider the new card as a way to keep your credit healthy during this period of financial instability.

Pay Off Your Balance Consistently

One of the most obvious ways to keep your credit utilization low is to only make purchases you know you’ll pay off. This way, you’ll be able to keep the amount of debt you owe to a minimum.

Unfortunately, in these turbulent times, you may find your business struggling to pay off your credit card bill. Or perhaps your business lacks a cash flow right now and needs to buy on credit to carry a balance. If these situations match your business’s profile, only make necessary purchases on your credit card. Your credit utilization rate will thank you down the line.

All told, dealing with a lower credit limit on your card is a frustrating endeavor. By taking the above steps, you may be able to protect your credit score — potentially benefiting your business into the future.