I have to credit some of these thoughts to a message posted on another site, but it made a lot of sense to me from the bank's perspective. As more and more people are losing jobs in this economy, they will rely more heavily on credit cards to meet their daily living needs. Then they get behind on their bills, so they will begin to use their credit cards even more, and then their credit score will start to decline. Then they lose their home, and credit scores plummet. By this time, they have maxed out their credit cards. They have nothing to lose by walking away from the credit card debt, leaving the ccc in the cold.
Even people who have paid their bills on time for years can lose their jobs and financially spiral downhill in a hurry. And if you have demonstrated to the ccc that you can accumulate a moderate to large balance on your cc (even if you have done it responsibly), you would probably run up a similar balance in desperate times.
So the ccc are simply limiting their future loss liabilities by preventing you from charging large balances by reducing your available credit. They are not concerned about your credit score, only the possibility that they may be left holding the empty money bag.
I believe, as well, that the types of purchases that you make on your cards will affect the swiftness of the credit line reduction. For instance, do you charge often at Walmart (a prime source of household goods/necessities), the grocery store, the gas station, the pharmacy? This would be red flag that you are having a tough time paying cash/debit for life's basic necessities. Especially if you are not paying pretty much in full at the end of each month. So if you are barely making it now, what happens if the economy gets worse? More charges. More possible losses for the ccc. So especially when someone who has been paying off a balance for quite some time suddenly pays down a substantial amount, the ccc is going grab the money and run.
So this question comes to mind to those who have had their limits drastically reduced: what type of purchases have you made with your card--are they ones that would suggest that you are living paycheck-to-paycheck? Just curious if the two are correlated.
Small businesses, in particular, would probably be more at risk for credit limit reductions as more small business struggle to make ends meet. And many won't make it, but will have maxed their cards trying.
