More and more, the industry has been seeing a decrease in credit limits. Historically, lenders have taken this action to reduce risk in times of economic uncertainty. In the last few months, some large credit card issuers have reported tightening credit lines to stem losses related to the coronavirus pandemic.

As we described in a previous blog post, a borrower being in forbearance doesn’t impact the credit score on its own. However, a credit card issuer may see this comment on your client’s report and proactively reduce their credit limit, viewing their forbearance status as a factor working against their ability to pay. 

If your client has a healthy credit score and no recent changes to their income, they may think they won’t be subjected to these updates. This isn’t necessarily true. There are other reasons credit card issuers may choose to reduce someone’s credit limit (low usage, for example). No one should assume they are immune.  

A credit limit reduction will create a higher utilization ratio, which can negatively impact the credit score. How can you help your client mitigate the impact of a tightened credit limit? Here are some tips:

  • Update income information. First, your client may be able to lower the chance of getting their credit limit reduced if they update their income information with their credit providers. Of course, this would only help if their income hasn’t decreased since the last time it was recorded.
  • Reach out to the credit card issuer. After your client receives a notification that their limit was reduced, have them contact the company to ask for a reversal. The issuer may choose not to raise the limit again if income or credit rating has recently been affected, but your client won’t know for sure until they ask.
  • Simulate the impact on the credit score. If you’re working on a score improvement plan with a client whose credit limit was tightened, the reduction may affect the outcome if it’s reported before credit is re-pulled. Use CreditXpert® What-If Simulator™ to see if a lower limit could negate the positive effects of the credit management actions you’re planning with your client. 

If you have any questions about how you can assist your client during this time, don’t hesitate to reach out to us at info@creditxpert.com. We’re happy to help!