There are no rules that stipulate why credit card companies are lowering consumers' credit limits on their accounts.
Normally, the consumer has an idea why the company has taken steps to limit their risk usually because they were late on a payment or went over their credit limit, but now the only reason seems to be is that you are a cardholder with an outstanding balance.
Many consumers when receiving their monthly statement are finding out their borrowing limit has been reduced or their interest rate has been increased without warning from the bank.
What is true and understood by most consumers is that once their borrowing limit is adjusted, it also may result in a change in their credit score.
What are the factors that may affect your ability to maintain your current card limits? First, every account has a statistical value based on usage.
Accounts paid in full or rarely used are of no value to banks.
There simply is no money in it for them because the cardholder is not paying interest on a balance, there are no annual fees associated with the account and most importantly, these type of consumers are rarely accessed transaction fees when they don't follow the terms and conditions of the card issuer.
A second factor is risk quotient.
Companies consider whether it is likely a customer will be delinquent on their account.
Remember, companies in the business of extending money to you pay credit reporting agencies for your financial information.
If a card issuer observes where you have defaulted on a different credit card account, the bank in an effort to protect their financial interests will take the appropriate action to decrease their risk.
You are not using enough of your spending limit.
Card issuers review your spending patterns and will reduce your ability to borrow accordingly.
There is a term used for this practice, behavioral analysis where card companies evaluate where you spend money and how much.
If you have not used your account in awhile it sends a red flag to your card company.
It can result in your bank reducing your spending limit or even closing your account.
Keep in mind that you are still responsible for any outstanding balance you may have left and your credit history with the company remains for review.
Granted, interest rate increases and dramatic reductions in spending limits can send consumers deeper into financial stress, rather than encouraging them to pay their bills.
Card issuers are focusing on reducing their risk, which means they will take the necessary measures against consumers so they are not left holding the bag.
If you pay on time and are never late, you may still be considered a risk.
Currently, card issuers are reviewing your payment habits, credit score, and even where you shop to determine how big of a risk you may be to them.
In this economy, the banks definition of risk is changing which benefits them in profit, but in the long run it is the consumer who is always hit with higher payments and nowhere to turn for help.