As Americans continue to face the economic fallout from COVID-19, the risks of missing payments and increasing debt balances grow. As a result, some have seen credit card issuers respond by reducing previously extended spending limits and tightening the reins for new customers.

According to an April 2020 report from Bloomberg, Synchrony Financial, which issues several retail credit cards, will begin to manage its losses by “closely managing customers’ accounts” to reevaluate creditworthiness, and Discover has already begun offering fewer credit line increases for existing customers while reducing limits for new cardholders. However, Discover denies conducting more credit line decreases or inactive account closures in response to the pandemic, according to the report.

“Most people don’t realize how much freedom credit card issuers have to cut limits or even cancel cards without warning,” says Ted Rossman, industry analyst for Bankrate.

And there is precedent; many issuers lowered credit limits even for the most creditworthy cardholders during the 2008 financial crisis.

“Looking back to the Great Recession as a guide, the October 2008 Fed Senior Loan Officer survey found 20 percent of card companies cut credit lines for customers with prime credit scores and 60 percent reduced lines for subprime cardholders,” Rossman says. “Banks are once again very nervous about the state of the economy and the job market, and they’re pulling back on their risk exposure.”

Why reduce credit limits?

Reducing the amount of money that cardholders are able to borrow is one way in which banks look to mitigate their risk during times of financial uncertainty.

Typically, your credit limit is determined by a number of factors found on your credit report and credit card application, including payment history, income and credit utilization, among others, though some credit cards have standard credit limits that are extended to every cardholder. Many issuers may also increase your credit limit over time or grant higher credit limits upon request.

But when consumers face job loss, business closure and financial hardship during an economic downturn, they may be forced to borrow more money than they can afford to repay, leading to an increase in account delinquencies. Decreasing the amount of credit available to cardholders is one way for issuers to reduce this risk.

How could a lower credit limit affect your credit score?

If your credit limit is reduced, it’s important to adjust your credit use accordingly so you don’t see a negative effect on your credit score.

Your credit utilization ratio, or the amount of credit you use compared to your overall limit, is one of the most influential factors in calculating credit scores under both FICO and VantageScore models. Ideally, your utilization should remain under 30 percent, though the lower it is, the better for your score.

If your credit limit is reduced but your spending remains the same, your utilization rate will increase. In other words, if your credit limit is currently $20,000 and you spend $2,000 each month, your utilization rate is a healthy 10 percent. If your overall limit is reduced to $5,000 and you continue to spend $2,000, though, your rate will increase to 40 percent.

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Are you at risk?

It’s likely that more issuers will begin pulling back credit limits and impacting card use over the next several months. But there are ways you may be able to reduce the risk of your credit limit being affected.

“Dormant cards are prime candidates for cancellation, so if you haven’t made a purchase on a card in a while, you should buy something small and pay it off right away,” Rossman says.

You should also keep up good credit habits like keeping utilization low and making timely payments each month.

“You might see your credit limit cut or your card cancelled if you get close to your credit limit,” Rossman says. “That may be unavoidable if you’re in a financial bind, but if you can, try to pay down your balance and gain some separation between your credit limit and how much you owe.”

If you find your credit limit has been reduced, your issuer should notify you of the change. You can try reaching out to your issuer to ask for it to be raised again, or request a credit limit increase on another card to make up the difference.

“This underscores why it’s dangerous to use your credit card as your emergency fund, because that credit line could be pulled out from under you,” Rossman says. “If you’ve having trouble, let your card company know and there’s a good chance they will work with you on a solution.”

If you’re facing economic hardship due to the novel coronavirus pandemic, contact your issuer for assistance. Many credit card companies have developed customer assistance plans that may be granted on an individual basis, but you must reach out to your issuer to learn which options are available to you.