Credit card companies deserve, well, credit for helping cardholders survive the pandemic. Most of the major card issuers were willing to be flexible with payments, and some even waived late fees.
But many card companies also quietly but aggressively turned the screws on customers.
Amid the worst economic conditions since the Great Depression, card issuers have protected themselves by cutting credit limits for many customers, often without warning or explanation.
Nearly a third of all cardholders in the United States lowered their credit limit or closed their account during the first four months of the year, according to a recent LendingTree survey.
That’s roughly 62 million people, in addition to the tens of millions who faced similar problems last year.
Along with reduced purchasing power, a lower limit means that you will likely use a higher percentage of available credit each month. This can hurt your credit score.
Rosalind Goddard, 77, was one of the people recently notified out of the blue that she is no longer considered as credible as before.
The South Los Angeles resident said that after 36 years as a Nordstrom cardholder and a frequent customer of the company’s Seattle department store, her credit limit was lowered overnight to $ 1,000 from $ 5,000.
“I’ve been with Nordstrom for a long, long time,” Goddard said. “This was very unpleasant.”
He noted that he immediately called Nordstrom to ask what had happened. Why, after all this time, after thousands of dollars in clothing and shoe purchases, was she suddenly being treated like this?
“They told me it was because I wasn’t using my card enough,” Goddard said.
“I asked them what they expected me to use it for in the middle of a pandemic, while we are all in isolation. I was not interested in buying more clothes or shoes because I had nowhere to go. “
The Nordstrom representative, Goddard added, “apologized profusely, but had no further explanation than to say that I was not using my card enough.”
Presumably, the rep didn’t want to admit the obvious: Nordstrom, like many card issuers, was putting its own financial interests before those of a loyal customer during unusually difficult times.
“This reduces your outstanding risk,” said Linda Sherry, director of national priorities for the advocacy group Consumer Action.
He acknowledged that it is “fairly typical” for card issuers to lower credit limits when loans decline during normal times. But these have not been normal times.
Many pay-to-pay consumers have been forced to rely on their card to make ends meet. Others have relied on their credit cards as a financial safety net during various strong points in the pandemic.
“Cardholders legitimately stress, ‘I’m managing my credit limit responsibly and this is how they treat a long-term customer,'” Sherry observed.
According to LendingTree, more than 558,000 cardholders were affected by a credit limit reduction or account closure every day from January to mid-April.
Lack of activity was the main reason given by card issuers for the moves, according to the survey.
“Unfortunately, there is no surefire way to prevent an issuer from closing your card, but there is a simple way to improve your odds: use the card more,” said Matt Schulz, LendingTree’s chief credit analyst.
“It’s also important to understand that banks don’t just close dormant accounts and cut credit limits during bad economic times. It can happen even in the best of times.
Schulz emphasized that people should not hesitate, after an unexpected credit limit cut, to contact their card issuer and request a higher level.
That’s good advice, especially since the arbitrariness of many cuts suggests little or no thought is given to decisions. With tens of millions of accounts involved, it’s hard not to believe that much of this process is automated.
However, you still have to wonder why many card issuers are willing to alienate consumers at a time when they are desperate for people to start spending again.
“Goddard’s lowering of the credit limit seems shortsighted,” Sherry noted, “especially with the impact that high-end clothing retailers suffered during the pandemic.”
Nordstrom, like most non-Amazon retailers, experienced heavy losses in the last year.
In the first quarter of 2021, the company posted a loss of $ 166 million, but stressed that it expects sales growth of more than 25% this year, as the economy recovers.
That seems to validate Sherry’s opinion: It’s remarkably shortsighted to push a good customer just when you expect her and others to use their Nordstrom cards again.
And Goddard is the type of customer this company should appreciate.
“I really like what they have when it comes to clothing and accessories,” she replied when asked why she had kept her Nordstrom card since 1985.
“That’s why it bothered me a lot when this happened.”
Goddard did precisely what all cardholders should do if notified of a sudden credit limit reduction: He called the company.
She also responded cautiously when instructed by the Nordstrom service representative that she would have to inspect Goddard’s credit file.
There are two types of credit inquiries, a “hard pull” and a “soft pull.” There is a jerk when you apply for a new loan. It can affect your credit score, possibly lowering it a few points.
Usually a gentle pull is done during background checks or if a lender wants to inspect your credit file without your permission. Normally, this will not affect your score.
Goddard didn’t want to take chances. “I told him that I did not want my file thrown away.”
Instead, he contacted me. And I contacted Nordstrom.
Within days, I am pleased to report, Goddard received a call from a company executive commenting that his credit limit will be raised to $ 3,000. That’s less than the $ 5,000 limit you previously enjoyed, but considerably better than the $ 1,000 limit the company imposed.
“Lowering credit limits is pretty standard practice for any credit card issuer,” Nordstrom told me in a statement.
“We review accounts regularly, which may result in some accounts being identified as eligible for a credit line decrease. We consider a number of factors in that process, including a customer’s purchase history over a period of time. ”
I asked him if, by raising Goddard’s limit to $ 3,000, wasn’t Nordstrom admitting that he went too far by lowering it to $ 1,000? The company had no response.
But she said the Nordstrom executive who called her “apologized for what happened and acknowledged that the matter had not been handled well.”
The executive also confirmed that no effort was made in his credit file to increase the limit and agreed to put it in writing.
“I’m very happy,” Goddard told me.
I let you know that Nordstrom expects a big increase in sales this year. Will she contribute to that?
“Sure!” Goddard answered without hesitation. “I’m not an extravagant person, but I do like pretty things.”
Like many other people. This is why retailers should think twice before putting pressure on customers.
If you want to read this article in Spanish, click here.
–
