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Safety net threatened for consumers who need credit cards during economic crisis, as firms move to cancel dormant cards and reign in limits.
Major U.S. credit card issuers have begun to cut their risks by lowering spending limits on consumer credit cards, as the economic toll of the coronavirus continues to unfold.
They really do have a lot of power to change these things, but it's coming at the worst possible time for consumers because a lot of people need these cards to get by," said Ted Rossman, an industry analyst for Bankrate.com and CreditCards.com.
Rossman says when your spending limit gets cut, your credit score is also likely to drop.
"That's one of the reasons why it can really hurt you to have a credit limit cut or a card canceled without warning," he said.
Companies like Discover tell Newsy they are not lowering credit lines for existing customers, but will tighten other lending standards. Synchrony Bank told investors on a recent earnings call it is taking actions on current credit customers.
“We're continuing to utilize internal and credit bureau triggers to dynamically reevaluate the customer's credit worthiness,” said Brian J. Wenzel Sr., Synchrony's chief financial officer.
It means the millions losing their jobs in the wake of COVID-19 may not necessarily be able to count on credit they have today as a safety net to pay for medical bills or other critical expenses tomorrow. Also, if you have not used a card in a little while, it may get canceled altogether. That can happen whether or not you pay your bills.
During the Great Recession in 2008, Rossman says 60 percent of people with subprime credit had cards canceled or credit limits cut without warning. Surprisingly, the same happened even to 20 percent of people with good credit.
To keep your access to credit open during the coronavirus, make sure to dust off any dormant cards and use them at least for a small purchase now. If you do anticipate money troubles, consider telling your credit card companies about that right now and coming up with a plan, before they lower your access to credit.
Many consumer banks are also offering temporary hardship assistance for those impacted by COVID-19, such as allowing customers to defer a card payment and waiving fees. Still, to ensure you will have the ability to pay for critical supplies in an era of credit cuts, some have begun advising holding on to your cash instead of paying your entire credit card bill at the end of the month.
"I think you really need to preserve cash flow right now, even if it means carrying debt for a time," Rossman said. "When money comes in, like the stimulus payment, for example, or your unemployment benefits, I would advocate more than usual for keeping that money on hand -- either in emergency savings or for spending on necessities."
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