Credit Line Slashing

[Anonymous]

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@KatrinaE wrote:

I have seen a lot of posts were credit lines are being slashed for various reasons. 

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While there are definitely many different reasons that AA is taken against credit lines, the #1 reason by leaps and bounds is due to the introduction of negative information (late payments being the most common) to a credit report.  I would say that in 99% of cases this is the culprit.  Sometimes this may be accompanied by other things like prolonged high utilization, but almost every time the catalyst is a negative item being introduced.

There are of course a ton of other reasons completely unrelated such as card non-use or minimal use, an abnormally large charge being made, etc. but those things are exceptions and far less common than the #1 reason I gave above.

[Gollum]

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@Anonymous wrote:
Economic factors play a part. The rising debt load, stagnant wage growth, an increase in defults, all that fun stuff.

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OpenG,

Wage growth (or the lack thereof) is an intensely personal concern, but it is easy to find out how wages in the overall U.S. economy are doing:

just google for "wage growth"

Disregarding Google's "featured snippet" (https://support.google.com/webmasters/answer/6229325?hl=en) at the top of the resulting webpage because epi.org (Economic Policy Institute) is, according to Wikipedia, "...usually described as presenting a liberal viewpoint on public policy..." (https://en.wikipedia.org/wiki/Economic_Policy_Institute):

The first hit (https://www.frbatlanta.org/chcs/wage-growth-tracker.aspx) shows the three month moving average of median wage growth since 2010 has been approximately between 1.8% and 3.4%.

The second hit has the title "At a 10-year high, wage growth for American workers likely to keep accelerating" and is dated March 8, 2019 (https://www.marketwatch.com/story/at-a-10-year-high-wage-growth-for-american-workers-likely-to-keep-accelerating-2019-03-08).

So even though some individuals undoubtedly feel as though their own wage growth is stagnant, wage growth for the overall U.S. economy does not seem to be stagnant.

Edit: The inflation rate should also be considered along with wage growth or lack thereof. "The current inflation rate for the United States is 1.9% for the 12 months ended March 2019, as published on April 10, 2019 by the U.S. Labor Department." (https://www.usinflationcalculator.com/inflation/current-inflation-rates/ and there are links for different years and a calculator to compare different time periods)

[SouthJamaica]

Credit card lenders need to have loan loss reserves. https://www.bloomberg.com/news/articles/2018-06-07/credit-card-issuers-beef-up-reserves-in-anticipat...

[frugal47374]

(If that is in reply to questions about what it costs banks to have customers with unused credit limits...)

Those reserves are for loans actually made, not for unused credit limits.

[SBR249]

While fractional reserve banking specifically refers to the practice of banks holding in reserve only a portion of what their customers have on deposit (deposit liability) while investing or lending out the rest, the concept should still be broadly similar and applicable to what a CC issuer does. 

It would be impractical and inefficient for a lender to have 1:1 parity between the CLs that it issues and the liquidity it keeps on hand to service those CLs because it is a fact that not everyone uses 100% of their CLs all the time. What lenders strive to achieve is a dynamic equilibrium between incoming repayments of balances and outgoing payments to merchants with a margin of profit. In that sense, if everyone paid their debt on time, a lender would theoretically only need minimal bridge funds to keep the ball rolling between transaction date and payment date. However, since defaults, late payments, not PIF, etc. are things that people do, lenders usually will take into account the expected total balances payable (based on historical data) and the expected default/non-payment/delayed payment rate and keep a certain level of reserves to cover those exigencies with a buffering margin. 

[SouthJamaica]

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@frugal47374 wrote:

(If that is in reply to questions about what it costs banks to have customers with unused credit limits...)

Those reserves are for loans actually made, not for unused credit limits.

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The increase or decrease of a credit limit is in itself an accounting event which connotes increased or decreased credit risk. https://www.pwc.com/gx/en/audit-services/ifrs/publications/ifrs-9/revolving-credit-facilities-and-ex...

[Lucifer]

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@KatrinaE wrote:

I have seen a lot of posts were credit lines are being slashed for various reasons.  Some using their cards and carrying a balance, some for not using their cards and not carrying a balance.  I saw a post about "bust-out" behavior etc.  What is behind all the credit line slashing?   Is there any particular trend to it, industry reason, ways to avoid it etc?

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In my own experience over the years and on various chat boards - this has been going on forever.   Once happened to me as well.

BOA balances chased me in one fell swoop from 10k to 1k.    Chase, citi - they got me too - chase closed me down.   Now mind you, I neever defaulted with them - not even a 30 day late.  BUT - I did have a dentist put a judgement on me for $80 and this happened around 08 when the ecomomy had some issues and I did have some balances.   

It is what is it - none of those banks knew me or what was going on with me  - they just all have their algorythms and stock holders.    I allowed my actions to match those that are risky and I was treated as such.   It'e been happeneding and will happen.   Plan accordingly.

It is also why I refer to Credit Lines as confidence points.     

[Anonymous]

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@Lucifer wrote:

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BOA balances chased me in one fell swoop from 10k to 1k.    Chase, citi - they got me too - chase closed me down.   Now mind you, I neever defaulted with them - not even a 30 day late.  BUT - I did have a dentist put a judgement on me for $80 and this happened around 08 when the ecomomy had some issues and I did have some balances.    

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See, the catalyst here was the introduction of a negative piece of information.  I swear, 99 times out of 100 this is the reason.

[Revelate]

BBS: there are also plenty of people who get a late or other thing tacked on and nothing happens. I know personal anecdotes aren’t worth much but no lender has blinked in the course of my credit history for all the stupid things that have happened to my credit.

I’m not sure your 99% is really reality honestly as it is more than a single factor that is being looked at.

[Anonymous]

We have seen plenty of times that Synchrony, Comenity, Chase, Amex, and Barclays have balance chased or CLD due to not late payments anywhere but due to high utilization of one or more cards, with them or another issuer.

I definitely wouldn’t say that 99% of it is from negative information on the credit report. Some issuers really don’t like seeing high utilization or even moderate utilization with minimum payments which is really annoying because it defeats the purpose of having a 0% intro offer if your other cards are going to sock it to you for using it.