Has your credit limit been cut? Time to check.
Due to the uncertainty brought on by COVID-19, many Americans are using far less credit than they were previously. According to MarketWatch, credit card debt fell $28.2 billion (30.9% annual rate) in March – the largest decline since January 1989. Even though Americans continue to shoulder the weight of this financial crisis, they are hesitant to take on more debt. 11% of employees have stopped paying down debt in an effort to support their immediate financial needs.
Our data shows Americans shifting their focus. Since March 15, we’ve seen a 14% increase in employees’ who have prioritized the goal of setting up an emergency fund. 74% of employees are concerned about at least one aspect of their well-being as a result of COVID-19.
But it isn’t just individuals that are making changes to support themselves during this financial crisis. Credit card companies are reacting to the decrease in credit usage by lowering credit limits, often without warning. Roughly 25% of card owners in the US had their limits reduced or accounts closed within the past 30 days. If you aren’t checking your credit accounts on a regular basis, a decrease in your credit limit could have a negative impact on your credit score. Why? You could (unknowingly) be using a greater percentage of your available credit by virtue of your credit limit decrease.
As a best practice, you should aim to keep your credit utilization rate below 30%. If your credit card company cuts your credit limit and your balance stays the same, your credit utilization rate will increase. Check your credit accounts. If you notice a credit limit decrease, call and ask your credit card issuer to raise it. If they are unable to grant your request, you may need to consider scaling back your spending or paying down existing debt.
There are valuable resources available to help you keep tabs on your finances. Equifax, Experian, and TransUnion are now offering free weekly credit reports through April 2021. Take advantage of this free resource to ensure you’re aware of any changes to your credit score, including potential credit limit decreases. Credit card issuers routinely monitor your credit usage and make adjustments if your creditworthiness changes, regardless of whether or not a crisis like COVID-19 has impacted your financial situation. Be proactive in monitoring your financial situation, and take steps when you can to improve your creditworthiness.