Arbitrary Credit Limit Cuts: Risky And Legal Even With New Credit Card Bill

Credit card limits are being cut down to astounding levels nowadays. A majority of credit card holders have had their available credit cut down to a fraction of their original amount. The practice isn’t likely to slow down either.

A research done by FICO, the credit scoring outfit, saw that in the 12 months prior to April this year, around 58 million credit card holders saw their available credit cut down to lower levels. During that same 12 month period, the research showed that the credit limit cuts accelerated as it neared the month of April. For the first six months of that period, 25 million credit limit cuts were seen. The next six months however saw the total number of credit card holders getting their credit limits cut grow to 33 million. The increase of credit limit cuts was calculated to be at an unprecedented 32%. What is even more worrying for credit card holders is the fact that, from all of the credit card holders who got their credit limits cut, only a third were card holders who had negative credit histories.

According to the research, credit card holders with good credit standing saw credit limit cuts averaging $5,100. This average hit a lot of credit cards with little to no balance on them and were usually owned by credit card holders with very good credit scores. As a result, many credit card holders are saying that the cuts are unfair. Even though they played strictly within the rules, they still got penalized by their credit companies.

Although credit card holders in good standing may think that they have been unfairly targeted, there are several factors that led to the credit limit cuts. One is the current economic crisis which has led to the largest percentage of write offs credit card companies have seen, reaching as high as 10.76% last June. Another is the continuing unemployment crisis which is expected to continue and peak next year.

Still, credit limit cuts can be disastrous for credit card holders, especially because credit card companies are not legally required to post advance notice to credit card holders for such a change in their credit card agreement. A recently activated part of the credit card bill dictates that credit card companies have to inform credit card holders 45 days before any credit card agreement changes. This does not include credit limit cuts, however.

Because credit limits weren’t traditionally regulated. In fact, the credit limit cuts can be considered as a direct product of the economic crisis which led to it slipping under the radar when the credit card bill was being drafted. Still, this does not change the fact that, whenever a credit card holder now uses his credit card, he has a very high risk of going over his arbitrarily changing credit limits.