Don’t just accept a reduction in your credit limit. To defend oneself
Credit card companies deserve, well, credit for helping cardholders survive the pandemic. Most of the major card issuers were willing to be flexible on payments, and some even waived late fees.
But many card companies have also quietly but aggressively turned the screw on customers.
Amid the worst economic conditions since the Great Depression, card issuers have protected themselves by reducing the credit limits of many customers, often without warning or explanation.
Almost a third of all U.S. cardholders had their credit limit reduced or their account closed in the first four months of the year, according to a recent survey by LendingTree.
This represents around 62 million people, in addition to the tens of millions who faced similar problems last year.
Along with reduced purchasing power, a lower bound means you’ll likely be using a greater percentage of available credit each month. It can hurt your credit score.
Rosalind Goddard, 77, was among those who were recently informed out of the blue that she is no longer considered as creditworthy as she once was.
The South Los Angeles resident said after 36 years as a Nordstrom cardholder and frequent customer of the Seattle company’s department stores, her credit limit was reduced overnight to $ 1,000. for $ 5,000.
“I’ve been with Nordstrom for a long, long time,” Goddard told me. “It was very off-putting.”
She said she quickly called Nordstrom to ask what had happened. Why, after all this time, after thousands of dollars in clothing and footwear purchases, was she suddenly treated like a bad dime?
“They told me it was because I wasn’t using my card enough,” Goddard recalls.
“I asked what they expected me to use it in the midst of a pandemic when we are all in lockdown. I wasn’t interested in buying more clothes or shoes because I had nowhere to go.
The Nordstrom representative, said Goddard, “apologized profusely, but she had no explanation other than to say that I was not using my card enough.”
Presumably, the representative did not want to admit the obvious: Nordstrom, like many card issuers, put its own financial interests ahead of those of a loyal customer during exceptionally difficult times.
“This reduces their exceptional risk,” said Linda Sherry, director of national priorities for advocacy group Consumer Action.
She acknowledged that it is “fairly typical” for card issuers to reduce credit limits when borrowing normally goes down. But these times have not been normal.
Many consumers living on paycheck after paycheck have been forced to rely on their plastic to make ends meet. Others have relied on their credit cards as a financial safety net on rainy days during the pandemic.
“Cardholders are legitimately asking, ‘I manage my credit limit responsibly and this is how they treat a long-term customer? “, Observed Sherry.
According to LendingTree, more than 558,000 cardholders have been affected by a credit limit reduction or account closure everyday from January to mid-April.
Lack of activity was the main reason given by card issuers for the moves, according to the survey.
“Unfortunately, there is no foolproof way to stop an issuer from closing your card, but there is a simple way to improve your odds: Use the card more,” said Matt Schulz, chief credit analyst at LendingTree. .
“It’s also important to understand that banks don’t just close dormant accounts and reduce credit limits during bad times. This can happen even in the best of circumstances.
Schulz said people shouldn’t hesitate, after an unexpected credit limit reduction, to contact their card issuer and request a higher level.
That’s good advice, especially because the arbitrariness of many cuts suggests that little or no thought goes into decisions. With tens of millions of accounts involved, it’s hard not to believe that much of this process is automated.
However, you still have to ask yourself why many card issuers are willing to alienate consumers at a time when they desperately want people to start spending again.
The reduction in Goddard’s credit limit “seems short-sighted,” said Sherry, “especially with the blow that high-end clothing retailers took during the pandemic.”
Nordstrom, like most unnamed Amazon retailers, has suffered heavy losses over the past year.
In the first quarter of 2021, the company recorded a loss of $ 166 million, but said it expects sales growth of more than 25% this year as the economy recovers.
This seems to validate Sherry’s point: it’s remarkably short-sighted to put pressure on a good client, just like you’re hoping she and others will give their Nordstrom cards a workout again.
And Goddard is the kind of customer Nordstrom should treasure.
“I really like what they have when it comes to clothes and accessories,” she told me when I asked her why she’s been keeping her Nordstrom card since 1985.
“That’s why I was so upset when this happened.”
Goddard did precisely what all cardholders should do if they were told of a sudden reduction in their credit limit: she called the company.
She also responded cautiously when the Nordstrom service rep said that to take a closer look, she would have to inspect Goddard’s credit report.
There are two types of credit inquiries, a “hard pull” and a “soft pull”. A big hit comes when you apply for new credit. This can affect your credit score, or even reduce it by a few points.
A smooth draw is usually done when doing a background check or if a lender wants to inspect your credit report without your permission. Generally, this will not affect your score.
Goddard was taking no chances. “I said I didn’t want them to take my file away.”
Instead, she contacted me. And I contacted Nordstrom.
Within days, I am happy to report that Goddard received a call from a business executive advising him that his credit limit would be increased to $ 3,000. This is less than the $ 5,000 limit she had previously, but much better than the $ 1,000 limit imposed by the company.
“Lowering credit limits is pretty common practice for any credit card issuer,” Nordstrom told me in a statement.
“We review the accounts on a regular basis, which may result in some accounts being identified as eligible for a line of credit decrease. We take a number of factors into account in this process, including a customer’s purchase history over a period of time.
I replied that by increasing Goddard’s limit to $ 3,000, wasn’t Nordstrom admitting that he had gone too far by lowering it to $ 1,000? The company did not receive a response.
But Goddard said the Nordstrom executive who called her “apologized for what happened and admitted the matter was not handled well.”
The executive also confirmed that no effort had been made on his credit report to increase the limit and agreed to put it in writing.
“I’m very, very happy,” Goddard told me.
I let him know that Nordstrom expects a huge increase in sales this year. Will it help?
“Sure!” Goddard answered without hesitation. “I’m not an extravagant person, but I love beautiful things.”
Like many others. That’s why retailers should think twice before pushing customers around.