Consumers have a harder time getting and keeping credit

In some cases, the existing credit is cut. Credit card holders have had their credit limits reduced or their cards closed unintentionally.

Others cannot get the credit to begin with. Homeowners interested in a Home Equity Line of Credit, or HELOC, find that some banks are no longer taking applications.

These measures by the banks aim to curb available credit, because the economic impact of the coronavirus epidemic has made the ability of consumers to reliably make payments increasingly unpredictable.

“We felt the banks had already started modifying their offerings,” said Matt Schulz, chief industry analyst at CompareCards. “But we didn’t think it was happening so quickly for so many people.”

Here is what you need to know about the availability of your credit right now.

Credit card issuers withdraw

Credit card companies are increasingly reducing cardholder credit limits or closing cards altogether, according to Schulz. And, yes, with a few exceptions, they can do both without warning you, although they may warn you.

“Users find themselves without a lifeline they might have been relying on to get them to the next paycheck or unemployment benefit,” Schulz said.

Not only can this deprive consumers of an important financial lifeline, it can also harm their credit.

“In times of economic uncertainty, banks and lenders can become more cautious about minimizing risk,” said Beverly Anderson, president of global consumer services at Equifax.

This includes lowering credit limits on dormant accounts or accounts that don’t get paid regularly, she said.

Banks are happy to grant higher credit limits when times are good and unemployment is low. There is a good chance that they will be reimbursed.

“But when you have over 30 million people apply for unemployment, banks don’t know who’s risky and who isn’t, “he said.” All that available credit now looks like a lot of risk. ”

The changes appear to affect consumers at all income levels. He said he had even heard of people earning $ 100,000 or more who had had their limit reduced or their cards closed in the past month.

While credit card users in the wealthiest zip codes have almost $ 14,000 in available credit, those in areas with annual incomes below $ 45,000 have only $ 1,900 in available credit, according to the report. the New York Federal Reserve. The poorest users have at most $ 150 to draw on.

“Each emitter is going to attack it differently and some go at it with a flamethrower rather than a scalpel,” Schulz said.

Bank of America, Chase and Capital One did not immediately respond to requests for comment on credit cards.

HELOC suspended applications

Another lifeline that homeowners sometimes rely on is a home equity line of credit.

But for some, it may no longer be an option. JPMorgan Chase stopped taking requests for HELOCs on April 16 and Wells Fargo on May 1.

“The decision to temporarily halt the creation of new HELOCs reflects a close examination of current market conditions and uncertainty about the timing and extent of the expected economic recovery,” a spokesperson for Wells mortgage loans said. Fargo.

At Chase, the bank is temporarily bolstering its credit standards across the board, said a spokesperson, “and in some cases either by suspending new applications or focusing only on established customers.”

Bank of America has said it will continue to offer HELOCs.

Finding alternative sources of cash reserves

One thing people can do to protect their credit card limit from their card being reduced or closed is to use it.

“Use all dormant credit cards regularly to show they’re still active,” Anderson said. “Using them, even in small amounts, and paying them off quickly will show that you are using this line of credit responsibly to keep it from being diminished or closed.”

If you were relying on a HELOC to provide extra cash, but aren’t able to get one now, you might want to look to a retirement fund. like your 401 (k). the Coronavirus Aid, Relief, and Economic Security Act, or CARES law, allows people to withdraw up to $ 100,000 from a retirement account without the 10% early withdrawal penalty.
Alternatively, you can find a Personal loan, some of which are offered specifically to people impacted by the coronavirus, it can help to knit a safety net.

The most important thing, said Schulz, is to regularly check your balances and credit limits.

“If you are going out for groceries and it’s been a while since you looked at your credit limits,” he said, “make sure you don’t get surprised when you check out.

About Daisy Rawson

Check Also

Alternatives to Bad Loans

ArtistGNDphotography/Getty Images When you need cash fast, it can be tempting to consider bad credit …

Leave a Reply

Your email address will not be published.