A recent report from the CFPB sheds light on the practice of credit card companies reducing consumers’ available credit limits, known as credit line decreases. These reductions often occur during economic downturns to mitigate credit risk. Here are the key findings:
- Majority of credit line decreases were not linked to recent credit card delinquencies: While credit line decreases were four times more common for consumers with recent credit card delinquencies, about 67% of consumers who experienced reductions showed no evidence of delinquency.
- Credit line decreases led to significant reductions in available credit: The median amount of credit decreased by approximately 75% across different credit score tiers, often leaving consumers with less than $400 in available credit, except for those with superprime credit scores.
- Rates of credit utilization increased: Consumers across various credit score ranges saw their credit utilization rates significantly rise after a credit line decrease, with most essentially maxing out their cards.
- Credit scores tended to decline after a credit line decrease: Median credit scores decreased around the time of a line decrease, with a more significant decline observed for consumers with recent credit card delinquencies.
- Credit balances remained depressed for subprime borrowers: Unlike prime consumers who may offset reductions with other credit cards, subprime borrowers’ balances remained low even three quarters later.
This research, part of a broader series examining consumer credit trends, utilized data from approximately five million de-identified credit records maintained by one of the three nationwide consumer reporting agencies.