PHOENIX (3 On Your Side) - Credit card companies have slashed credit limits for tens of millions of consumers.

Credit cards

Nearly 70 million cardholders had a credit limit reduced or an account closed by a lender between mid-May and mid-July, according to a recent CompareCards survey. Matt Schulz, a chief industry analyst at CompareCards, said the cuts are not voluntary.

"Basically, the banks are seeing that people aren't using these cards, and banks are nervous about all the risk they see out there right now," Schulz told 3 On Your Side. "Any time there's this much economic uncertainty, banks tend to retreat into their shell a little bit and pull back on a lot of credit that's out there."

"There are definitely more cuts," he added. "If somebody isn't using a credit card in good economic times, then banks don't necessarily want them using it when times get a lot tougher because it might be a sign of economic struggle."

The survey showed that most of the credit reductions were for $1,000 or less. Still, 22% of people said their limits were slashed by at least $5,000.

There is something you can do to try and prevent your credit card company from paring down your available credit.

"The next time you go to the grocery store, use one of those cards that you haven't used in a while instead of your primary card," Schulz said. "Or if you have a Netflix or a Spotify subscription, consider switching those monthly subscriptions to a card that you don't use very often. Those sorts of things -- that activity -- can keep those cards live and make them a little less likely of a target for banks."

Account closures and reduced credit card limits can negatively impact your credit score because it changes your credit utilization rate.

"If you have $3,000 in debt and $10,000 in available credit, your utilization rate is 30%, which is about the max that you want it to be," Schulz said. "If your credit limit gets reduced from $10,000 to $5,000, all of a sudden, your utilization rate is 60%, and that can really take a toll on your credit score."

In most cases, Schulz says a lender is not required to give you notice if they're cutting your credit limit, but right now, most lenders are. According to the survey, almost 90% of people who had their credit limits reduced said they were notified of the change.

As credit limits are being cut, Americans are also whittling down their credit card balances. A CompareCards analysis of credit reports in the top 100 American metropolitan areas shows the average card balance in Phoenix dropped from $6,865 in February to $6,321 in May. That's a 7.9% reduction. The national average over the same time frame was a 6.6% drop.

The credit card paydown, however, is not expected to last. WalletHub projects U.S. consumers will add an extra $80 billion in new credit card debt by the end of 2020.

RELATED STORIES

Free credit score report available every week for a year
Money advice during these difficult times
10 things to do during quarantine to protect your financial future
What are the consequences of late credit card payments?
 

Copyright 2020 KPHO/KTVK (KPHO Broadcasting Corporation). All rights reserved.

Recommended for you