B. Grant McNutt

If you’ve recently received a notice that one of your credit card accounts has been closed by the issuer, or that your credit limit has been cut, your first instinct may be to wonder what you did wrong. Usually, accounts are limited or closed when the credit accounts are significantly past due, or when the cardholder’s credit history has taken a negative turn. 

Currently, we are living in unusual times. 

When a credit card issuer decides to cut your credit line or close your account, it is all about risk. Often, that risk has to do with your payment history, the fact that you appear to be taking on a lot of debt, or other negatives appearing on your credit report. The credit card issuer’s risk analysis extends beyond your personal finances. 

With tens of millions of Americans unemployed, many small businesses closing their doors forever, large corporations filing Chapter 11 bankruptcy to keep their heads above water and the future uncertain, many lenders are looking to scale back their risk. Part of that effort involves cutting back on the amount of money people around the country can suddenly “borrow” from them. 

That is why tens of millions of Americans abruptly saw their credit lines shrink or their accounts closed over the past several months.

Who Lost Credit? 

Closures and credit line reductions are widespread. More than one-third of respondents to a Qualtrics survey commissioned by CompareCards.com said they’d seen their credit limits reduced on at least one card. One-fourth of participants said they had at least one account closed. Researchers concluded that about 66 million people had their credit limits cut or credit card accounts involuntarily closed across a 60-day period. That is on the heels of about 50 million reductions and closures between late March and late April. 

No demographic appears to have been entirely safe from credit cuts and closures. However, there are some trends–and they may not be what you would expect. 

Younger borrowers were the most likely to experience cuts and closures, but “younger” does not mean just those who are new in the working world and have a relatively little credit history. Those aged 24-31 were most likely to be impacted, with more than half seeing credit lines decreased and 44% losing at least one account. Both this group and older Millennials–those aged 32-39–were more likely to be affected than the youngest group, aged 18-23. Those 55 and older were the least likely to see any adverse action.

While you might expect those with lower incomes to be viewed as higher risk, those with incomes of $100,000/year or more were hardest hit. Cardholders in that group were most likely to see credit lines reduced–likely due to having higher starting credit limits–and second-most-likely to have lost accounts. Cardholders earning $50,000 to $74,999 were least likely to be affected. Still, twenty-eight (28%) percent in that group said they had at least one credit limit lowered, and twenty-two (22%) percent reported having a credit card account closed. 

What to Do if Your Account Was Closed

Seventy-one (71%) percent of Americans and eight-three (83%) percent of Millennials use credit cards. According to valuepenguin.com, in Alabama, Mississippi and Tennessee, the average cardholder has two to three credit cards. Those statistics combined mean that many people in these three states will be impacted by the sudden closure of a credit card account, or reduced credit limits. 

If you receive notice that a credit card account was closed or that your credit limit was reduced to the point that you have little or no available credit, don’t forget to update any accounts that are using the card for auto-billing. If you have little-used accounts, you may want to check their status by logging in to your online account–about three percent (3%) of those who had accounts closed or limited say they never received notice, and another ten percent (10%) say they received notice a while after the change took place. Those percentages sound small, but three (3%) percent of 66 million cardholders is nearly two million people who may not have received notice that their credit cards were canceled or their accounts altered.

The most important thing to know is that if you had a credit card account closed, that does not change your responsibilities. You are still expected to make payments on schedule, and you will still be subject to interest rate and late fees. If you do not make payments, the credit card company will likely pass the account along to a collection agency and or sell it to a debt buyer. You can still be sued by the credit card for non-payment. In other words, nothing changes except that you cannot make new charges on your account. 

Closure of an account may also have a negative impact on your credit score, since it may result in you using a higher percentage of your available credit or may reduce the average age of your credit accounts. Maintaining on-time payments and reducing your outstanding balances on other accounts can help mitigate the damage, though you likely will not see results immediately. 

Bond & Botes Helps People Struggling with Debt

American consumers are facing an all-around difficult time, with unemployment high, credit contracting, and the price of many essentials increasing. The attorneys at Bond & Botes have devoted decades to helping people who are overwhelmed by debt. 

Let us solve your financial problems and you can begin gathering information right now by scheduling a free consultation with one of the experienced bankruptcy attorneys at Bond & Botes. We can answer all your questions regarding Chapter 7 Bankruptcy, Chapter 13 Bankruptcy, stopping a foreclosure or wage garnishment, avoiding liens, stopping lawsuits, discharging medical debt, personal loans, payday loans, credit card debt, etc.  We can alleviate your stress! We want to help and we can help you!  

Bond, Botes, Sykstus, Tanner & McNutt, P.C.

Web: www.bondnbotes.com

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