NerdWallet: Will the economy get worse? Consider raising your credit limit before it does.

by | Sep 19, 2022 | Stock Market

This article is reprinted by permission from NerdWallet.  Relying on a credit limit in a shaky economy is the equivalent of expecting a weak bridge to weather a storm and carry you to survival.

It’s not uncommon for credit card issuers to minimize their risk by lowering credit limits or closing accounts when there’s potential for economic distress. Credit card issuers took these actions in the 2007-09 recession and early in the COVID-19 pandemic, according to a 2022 report by the Consumer Financial Protection Bureau, perhaps due to changes in credit profiles, internal account performance metrics or shifts in the issuer’s risk management policies. Even as an uncertain option, a credit limit is still a bridge worth preserving to supplement or back up an emergency fund, especially before a potential recession. There isn’t a foolproof strategy to prevent an issuer from lowering credit limits or closing accounts, but some actions may minimize the impact to your wallet and credit scores.Keep credit cards open and active In March and June 2020, many accounts owned by cardholders, even those with high credit scores, were closed due to inactivity, according to a special issue brief by the CFPB that same year. Inactive cards aren’t making the issuer money in fees, so they pose more risk to the issuer during tough times. It’s worth keeping credit cards open and regularly charging planned purchases to give issuers one less reason to touch your account, but that might not be enough. For Timothy Barnes, an auto mechanic based in Rocky Mount, North Carolina, it didn’t matter that he was still employed in late 2020 with active accounts in good standing. A major issuer closed several of his accounts, scrapping over $17,000 in available credit. “It w …

Article Attribution | Read More at Article Source

Share This