What to Do If Your Credit Is Cut or Canceled

When the economy gets tough, credit card issuers get tougher. It's something many cardholders are finding out now.

Banks have been slashing credit limits — or cancelling credit cards altogether — to reduce their risk of loss from customers who can't pay their bills. Card issuers took similar action during the Great Recession, when 20% of banks cut credit limits to cardholders with good credit scores while 60% cut them to subprime customers, according to an October 2008 Federal Reserve survey.

If your credit limit is lowered or your card is canceled, contact the issuer to ask if it will reconsider. Industry experts report that some reductions in credit limits, for example, were reversed if consumers contacted the issuer within 30 days.

Here are some reasons why a card issuer may change their terms with you and what you can do about it:

You don't use the card and want to keep it. Banks have just so much credit to extend, and they want to offer it to customers who will use it and generate fees and interest. If you have a card that you rarely use, if ever, start making small purchases with it regularly and pay off the bill on time.  

You're close or at your credit limit. Maxing out credit cards can be a sign that customers' finances have deteriorated and they're at risk of default. That can also damage credit scores, an indicator of creditworthiness.

One consequence of credit limit decreases or card cancellation is that your credit usage rate can go up, pushing you closer to your credit limit. For example, if your total credit limit on all your cards totals $10,000 and your balance is $2,500, you're using 25% of your credit. But if your total credit limit is lowered to $6,000, a $2,500 balance means you're using about 41% of your available credit.

For a healthy credit score, keep your credit usage to no more than 30% of your available credit.

You've missed or made late payments. These, too, signal financial difficulties. If that's the case, reach out to your credit card issuers. Many offer hardship programs that provide payment relief to financially stressed customers.