Why Do Banks and Lenders Reduce Credit Limits?

Due to the pandemic, shut-downs have created an economic crisis that substantially increases the risk for lenders.

With tens of millions of people unemployed, it’s not surprising there’s a greater reliance on credit. And with that, a higher percentage of missed payments on these accounts.

To minimize risk, financial institutions are reducing some borrowers’ credit limits and lines of credit.

They’ve also tightened approvals for new credit, removed some loan and credit card options from their websites, and even canceled consumers’ credit cards.

While many cuts are in response to financial challenges from COVID-19, banks do make adjustments to credit limits for various reasons.

Some changes benefit consumers, but others can negatively impact their financial health.

Read on to learn:

• reasons why banks reduce credit limits
• how lower limits can impact your finances
• what to do if credit card companies reduce your spending limit
• how to help prevent it from happening in the future

What’s a Credit Limit & How You’ll Know It’s Reduced