I'm glad I found this page - I am thoroughly miffed by this thing. I got a letter today from GEMB (Old Navy) - they have lowered my limit to just above its current balance. I have been trying hard to pay all of my bills every month, while making zero progress on reducing balances for nearly a year now, since I'm paying my doctor bills off before I get to anything else. And my reward for working on it is to have my FICO score further reduced just because "they felt like it". It was already in the tank as it is, now my debt to credit ratio is even worse, and my score is going to show another drop next month. Lovely.
That's what I get for trying to be responsible about my credit situation, when I went through and closed all my open credit lines that weren't in use my credit score dropped like a rock. Apparaently that was a bad idea in the world of FICO, so I discovered after the fact.
So, since GEMB lowered my credit limit, I canceled the account. I'm going to do that with any other GEMB accounts I have as well - I know of at least one of them.
Yes just one though?!?! I guess it is because I had nothing owed on that acount but I had just paid it off the month before. I have had the account for 4 years always paid on time. Never late or missed. Had a credit limit of $5000.00 and it was reduced to $300.00!!!
When I called about it they said they had the right to make any adjustment they wanted to and there was nothing I could do about it. Their reply was so arrogant that I wanted to close the account but closing accounts has an effect on your credit score also. So I am just not using it and won't ever again. It was through Household Finance (HSBC).
The next month my FICO credit score went from 740 down to 650, I was shocked. I am current on all my bills. I do not ever pay late and pay more than required always.
I think this sucks!!!
American Express is noted for doing this. They lowered my limit and almost placed me overlimit with my charges. I had nothing negative on my credit report. I paid off my debt with them and won't use their card anymore.
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.