Roughly one out of every four Americans who hold a credit card — nearly 50 million people — saw their credit limits slashed or accounts involuntarily closed altogether by lenders over the past month, according to a new survey.
CompareCards, the Lending Tree site that conducted the survey, was so struck by the high numbers that it ran the survey a second time to be assured of the fallout to cash-strapped consumers hit with staggering unemployment due to the coronavirus crisis.
What are the details?
CBS News reported the findings, noting that "many lenders made their moves in the past month to avert losses if cash-strapped consumers struggle to keep up with payments amid surging U.S. unemployment."
The outlet added, "The credit curbs happened just when household budgets are particularly strained from coronavirus-related job losses and families are believed to be using their cards more frequently. The Lending Tree survey reports that 42% more cardholders said they used their credit card in the last month compared to the same period last year."
According to the survey analysis, credit card companies see the writing on the wall and their actions are nothing new.
Why would an issuer cut your limit? To minimize risk. In good economic times, banks are more than happy to give cards and bump up credit limits for good borrowers because lenders are confident that they'll get repaid. In uncertain economic times, when a consumer's financial life can literally be turned upside down in a day, banks get nervous. That available credit suddenly looks like untenable risk, so banks often rein it in, to the chagrin of the cardholder. It's clear from this data that lenders are repeating their actions once more.
On Thursday, the new numbers for the United States showed that over the last seven weeks, more than 33 million people have applied for unemployment benefits, USA Today reported.
According to NPR, "The Labor Department is expected to deliver a historically bad employment report Friday, showing millions of jobs lost last month as the jobless rate soared to around 16% — the highest level since the Great Depression."