Credit card customers with cut limits may suffer difficulties in the future
March 19, 2008
In a recent nationwide cull credit card companies slashed the credit card limits of many credit card customers to within £100 of their existing balances, leaving many customers humiliated when they tried to make purchases on their cards only to find that they no longer had enough credit.
The credit card companies were criticised for slashing these credit limits without making the customers aware, and stated that the reason for this was to stop people from rushing out and spending on their cards in order to increase their existing balance and subsequently their credit limits.
However, there could be further turmoil in store for these credit card customers, as experts state that many could find it increasingly difficult to get credit in the future because of the way in which their credit limits have been cut. When assessing someone’s credit one of the areas that lenders look at is how close to the limit someone’s outstanding credit card balance is, and because these card companies have cut limits to just £100 above any outstanding balance affected customers will be pretty much maxed out on their cards.
One credit reference agency official said that the slashed limits could definitely impact on a person’s ability to get credit, stating: ‘These changes will show on your credit report and could have implications. Lenders can assess this information any way they wish. If you are only a couple of pounds below your balance that could ring alarm bells.’
Another industry official said: ‘The credit limit cut does create an interesting conundrum. The credit scoring models don’t take into account limits cut by creditors to minimize their own risks. So a limit cut that leaves the debtor essentially maxed out can only protect the lender and harm the debtor. This seems grossly unfair since the debtor isn’t given ample warning or notice to clear the decks and instead is caught by surprise.’
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