Don’t just accept a reduction in your credit limit. you can fight

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A South Los Angeles woman has been told the limit on a credit card she’s had for 36 years has been reduced because she didn’t use it enough during the pandemic. (Associated Press)

Credit card companies deserve, well, credit for helping cardholders survive the pandemic. Most major card issuers were willing to be flexible on payments, and some even waived late fees.

But many card companies have also turned the screws on customers, quietly but aggressively.

Amid the worst economic conditions since the Great Depression, card issuers have protected themselves by reducing the credit limits of many customers, often without warning or explanation.

Nearly a third of all U.S. cardholders had their credit limit reduced or their account closed in the first four months of the year, according to recent survey by LendingTree.

This represents approximately 62 million people — in addition to the Tens of millions who encountered similar problems last year.

In addition to reduced purchasing power, a lower limit means you’ll likely use a higher percentage of available credit each month. This can hurt your credit score.

Rosalind Goddard, 77, was among those recently told out of the blue that she was no longer considered as creditworthy as she once was.

The South Los Angeles resident said that after 36 years as a Nordstrom cardholder and a frequent customer of the company’s Seattle department stores, her credit limit was reduced overnight to $1,000 against $5,000.

“I’ve been with Nordstrom for a long, long time,” Goddard told me. “It was very off-putting.”

She said she quickly called Nordstrom to ask what had happened. Why, after all this time, after spending thousands of dollars on clothes and shoes, was she suddenly being treated like a bad penny?

“They told me it was because I wasn’t using my card enough,” recalls Goddard.

“I asked what they expected me to use in the middle of a pandemic when we’re all under lockdown. I wasn’t interested in buying more clothes or shoes because I had nowhere to go.”

The Nordstrom rep, Goddard said, “apologized profusely, but she had no explanation other than to say I wasn’t using my card enough.”

Presumably, the rep didn’t want to admit the obvious: Nordstrom, like many card issuers, was putting its own financial interests ahead of those of a loyal customer during exceptionally difficult times.

“It reduces their exceptional risk,” said Linda Sherry, director of national priorities for advocacy group Consumer Action.

She acknowledged that it’s “pretty typical” for card issuers to reduce credit limits when borrowing normally declines. But these were not normal times.

Many consumers living paycheck to paycheck have been forced to rely on their plastic to make ends meet. Others have relied on their credit cards as a financial safety net in case of bad weather during the pandemic.

“Cardholders rightfully ask, ‘I manage my credit limit responsibly and this is how they treat a long-term customer?'” Sherry observed.

According to LendingTree, more than 558,000 cardholders have been affected by a credit limit reduction or account closure everyday from January to mid-April.

Lack of activity was the main reason given by card issuers for moves, investigation found.

“Unfortunately, there’s no surefire way to stop an issuer from shutting down your card, but there is an easy way to improve your odds: use the card more,” said Matt Schulz, chief credit analyst. at LendingTree.

“It’s also important to understand that banks don’t just close dormant accounts and reduce credit limits during tough economic times. This can happen even in the best of times.”

Schulz said people shouldn’t hesitate, after an unexpected credit limit reduction, to contact their card issuer and ask for a higher level.

This is good advice, especially because the arbitrariness of many cuts suggests that little or no thought goes into decisions. With tens of millions of accounts involved, it’s hard not to believe that much of this process is automated.

However, you still have to wonder why many card issuers are willing to alienate consumers at a time when they are desperate to get people to start spending again.

Goddard’s credit limit cut “seems short-sighted,” Sherry said, “especially with the hit high-end apparel retailers have taken during the pandemic.”

Nordstrom, like most retailers not named Amazon, has suffered heavy losses over the past year.

In the first quarter of 2021, the company posted a loss of $166 million but said he expects sales growth of more than 25% this year as the economy recovers.

This seems to validate Sherry’s point: it’s remarkably short-sighted to pressure a good client just the way you hope she and others will give their Nordstrom cards a workout again.

And Goddard is the kind of customer Nordstrom should cherish.

“I really like what they have in terms of clothing and accessories,” she told me when I asked her why she’s kept her Nordstrom card since 1985.

“That’s why I was really upset when it happened.”

Goddard did precisely what all cardholders should do if notified of a sudden credit limit reduction: she called the company.

She also responded cautiously when Nordstrom’s service representative said that to take a closer look, she should inspect Goddard’s credit file.

There are two types of credit inquiries, a ‘hard check’ and a ‘soft check’. A hard pull occurs when you apply for new credit. This can affect your credit score and even reduce it by a few points.

A soft pull is usually done during background checks or if a lender wants to inspect your credit report without your permission. Generally, this will not affect your score.

Goddard took no risks. “I said I didn’t want them to take my file.”

Instead, she contacted me. And I contacted Nordstrom.

Within days, I’m happy to report that Goddard received a call from a company executive letting him know that his credit limit will be increased to $3,000. That’s less than the $5,000 limit she used to enjoy, but much better than the company-imposed $1,000 cap.

“Lowering credit limits is a fairly common practice for any credit card issuer,” Nordstrom told me in a statement.

“We regularly review accounts, which may result in certain accounts being identified as eligible for a line of credit decrease. We consider a number of factors in this process, including the purchase history of a customer over a period of time.”

I replied that by raising Goddard’s limit to $3,000, wasn’t Nordstrom admitting that it had gone too far in lowering it to $1,000? The company did not receive a response.

But Goddard said the Nordstrom executive who called her “apologized for what happened and acknowledged that the matter was not handled well.”

The executive also confirmed that no hard pulls were made on his credit report by raising the limit, and agreed to put that in writing.

“I’m very, very happy,” Goddard told me.

I told him that Nordstrom expects a huge increase in sales this year. Will she contribute?

“Sure!” Goddard answered without hesitation. “I’m not an extravagant person, but I like beautiful things.”

Like many others. This is why retailers should think twice before pushing customers.

This story originally appeared in Los Angeles Times.

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