Changes to credit limits affect consumer spending

01.20.09
By Lewis Green

As credit card companies continue to face a high percentage of credit card delinquencies, many providers have been looking for ways to recoup lost profits.

For example, many cardholders have been finding their credit limit has been unexpectedly lowered, as banks grow more cautious about who they lend to.

And having exemplary credit does not exempt you from this measure. Some people who have their credit limits slashed have never made a late payment, but their provider still - for one reason or another - has decided to act to minimize its exposure to risk.

A report on website Internet Retailer suggests that falling credit limits could impact the average person's spending behavior.

While many people reported they planned to voluntarily cut back on purchases over the holiday season, others may have found their hands tied due to credit concerns.

Although there is no hard data pointing to this effect, anecdotal evidence suggests that credit limits were among the factors considered by shoppers as they mulled their purchases.

Jeff Wisot of Buy.com told the news provider that during the past holiday shopping season, there was a rise in customers charging the items they bought to different cards.

Even if you are able to manage your purchases by spreading spending onto more than one card, a lower credit limit can have a negative effect on your credit score.

"A third of your credit score takes into account how close you are to your credit limits on your credit cards," consumer advocate Gerri Detweiler told Los Angeles' KABC-TV.

So, if your limit is lowered it may appear as if you have "maxed out" your credit card, which brings down your score, she added.

That is why it is important to look out for any mail from your providers, who could be notifying you of a change in your account terms.

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Credit limit cuts are causing some people to cut back