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Banks are decreasing credit limits and you might not even know

If the bank sees that you have a lot of credit card debt during this time, it is possible that you look like you’re at a lot of risk even if you have good credit.

BRYAN, Texas — The economy and unemployment rate in the United States has been an unpredictable roller coaster during the pandemic. Many banks are taking action to lower the risk of lending out money to people who may be in a financial pit right now.

Whether it’s online spending, additional mortgages, or future bills that need to be paid, people are always spending money. This pandemic is no different and banks know that.

“Credit limits are being looked at much more aggressively by most credit card issuers, where they’re just wanting to determine whether or not someone is more at risk of filing bankruptcy or defaulting as opposed to pre-pandemic, just because there’s an overall risk involved right now," said CreditUturn founder Lee Kendrick. 

If the bank sees that you have a lot of credit card debt during this time, it is possible that you look like you’re at a lot of risk even if you have a good credit score.

“Anyone below those thresholds, they’re looking to see whether or not you have too much limit available in comparison to your balances. If you do have too much available, they’ll often go digging in your credit. All these credit card issuers also still have the right to do a soft poll on your credit and look at other parts of credit use as well, so even if you’re not charging up their credit card, if they’re seeing you suddenly taking on a lot more debt in order to make payment, you’re also at risk," said Kendrick.

Kendrick added that many Americans may be seeing reduced limits or frozen credit privileges on their cards from their issuers.

“If you don’t have a credit monitoring service set up to provide you with that level of safety and information, then you’re just flying blind and you don’t know when those changes are taking place until you suddenly go to utilize that credit account you don’t have access for, or you don’t have as much money as you thought that you had. If you have reduced limit, whatever your balances you’re carrying, that limit shrinks your credit utilization. As your credit utilization has gone up, then you’re more at risk of filing bankruptcy or defaulting," said Kendrick.

Although filing for personal bankruptcy has been lower than the filings a year ago, Kendrick said the amount of bankruptcies post pandemic is unpredictable. He attributes this lower amount of personal bankruptcies to the CARES Act, unemployment benefits, and the decrease in the number of ways people can be spending right now.

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