Future financial difficulties for many credit card customers
As part of a nationwide cull many credit card companies have recently slashed the credit limits on the cards of many customers, reducing the limit to just £100 above the existing balance.
The card issuers did not inform customers of their intention to cut limits, stating that they did not want to give the customers the opportunity to go out and spend on the cards in order to increase their existing balance and therefore their credit limits.
It has now emerged that many of these customers could face future financial difficulties, as the reduction in credit limit could have an adverse effect on the consumer’s credit file.
Lenders look at how close to their credit limit card customers are when deciding whether to offer finance, and the way in which the credit limits have been cut means that affected customers will be extremely close to their credit limit until they repay their balance.
An official from a credit reference agency stated: ‘These changes will show on your credit report and could have implications. Lenders can assess this information any way they wish. If you are only a couple of pounds below your balance that could ring alarm bells.’
Another official said: ‘The credit limit cut does create an interesting conundrum. The credit scoring models don’t take into account limits cut by creditors to minimize their own risks. So a limit cut that leaves the debtor essentially maxed out can only protect the lender and harm the debtor. This seems grossly unfair since the debtor isn’t given ample warning or notice to clear the decks and instead is caught by surprise.’
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