August 20, 2009
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News: FICO Reports Millions See Credit Limit Cuts
A FICO, Fair Isaac Corp, report indicated that credit card companies slashed nearly 58 million customers' credit limits during the past year. The credit cardholder's credit scores were not a determining factor in their decision since many of them maintained prime credit scores. Despite the high numbers, the 58 million only represents approximately a third of all credit card accounts. According to the FICO study, it appears many of the accounts were either never or rarely used. The report also indicates that the credit limit cut had little or no effect on the credit card customers' credit scores.
The FICO report separated the credit limit cuts into two separate time frames; those between April 2008 and October 2008 and those between October 2008 and April 2009. Approximately 25 million credit card accounts were in the first time frame as lenders searched ways to cut risks. The second group contained an additional 33 million credit card accounts. Of the 33 million, approximately 73% had very good credit histories and no negative information on file. It is speculated that lenders used some outside information to determine which accounts to cut. According to FICO, this second group had a median credit score of 760 which is considered prime. The national median score is 723.
Although many of the accounts appeared to be in good standing, the study did indicate that approximately 9 million of the credit card accounts did have some negative information such as late payment histories. Accounts with late payment histories are often elevate the credit risk. This type of information could have been one determining factor in the credit limit cuts in these cases. The average credit limit cut for the first group was approximately $5,100 which was more than double the second go round. Small business owners were also hit by the cuts which caused much concern and stress since many of these owners use their personal cards to fund their business.