The COVID-19 outbreak has had a devastating impact on the American economy. While employers added a promising number of new jobs last month, unemployment is still in the double digits. Although Congress has passed three economic stimulus packages—With a total of almost $ 3 billion – many people barely manage.
In response to the pandemic, some banks have reduced their risk by tightening of credit standards or cut consumer credit. According to a recent CompareCards Report50 million credit card holders have lowered their credit limits, and some have closed their cards entirely.
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Lower credit card limits or closed cards are more than a drawback. These movements can reduce the use of your credit, which impacts 30% of your credit score—The second most important scoring factor.
Your credit utilization is your credit percentage used on all cards. For example, if your available credit limit is $ 10,000 and your total balance is $ 2,000, your credit utilization is 20%. You should try to keep your credit utilization below 30%, according to Experian“But a lower percentage is even better.”
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How to avoid (or treat) a credit limit reduction
One of the easiest ways to avoid surprise cuts or closings is to keep your cards active. Inactive or infrequently used cards are the most likely to be affected, according to CompareCards. This is because banks earn money with commissions and interest. If you don’t use a credit card, the bank is less likely to make money, and may prefer to minimize your risk.
If you experience a limit cut, a card close, or want to avoid either scenario, the CompareCards report recommends the following tactics:
- Ask your credit card company to reverse your decision.
- Keep all your credit cards in rotation.
- Schedule small recurring payments on your inactive cards.
- Apply for another credit card to increase your total limit.
During a financial crisis, it can be easy to focus on declines in your credit score. But it’s more important to take care of the basics, like paying rent, utilities, food, and transportation. If you’re struggling to make ends meet, it may be possible to get assistance from your lenders. Once your situation changes, you can work to improve your credit score again.
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