Banks cut credit card limits, even for prime borrowers

Posted by: John Tozzi on November 03, 2008

The Fed’s quarterly survey of bank loan officers (PDF here) is out today. No surprise that credit got tighter for businesses of all sizes over the prior three months (the surveys were filled out in the first two weeks of October).

But this time the Fed threw in an extra question about credit card borrowing that should get the attention of small business owners:

About 20 percent of domestic banks, on net, reported having reduced credit limits on existing credit card accounts to prime borrowers…. About 95 percent of banks that had reduced limits cited a less favorable or more uncertain economic outlook and reduced tolerance for risk as reasons for the action.
[italics added]

Got that? Borrowers with good credit are seeing their credit card lines reduced. (A larger share of banks, 60 percent, also lowered credit card limits for non-prime borrowers.) Banks cited economic uncertainty and less appetite for risk. They didn’t rate their own capital or liquidity positions as big factors in the pullback. Which might strike you as odd if you look at how much taxpayer money we just committed to recapitalize the banks.

As Nick noted this morning, credit cards are a more common financing source for small businesses than loans from friends and family. So if you use credit cards to fund your business or manage cash flow, and you’re in the habit of borrowing near the limit, watch out. A prime credit score isn’t enough to keep your line from being reduced. Now is a good time to line up more credit than you expect to need.

(More on pages 7, 45-48 of the Fed survey PDF if you’re interested.)

Reader Comments

Lloyd

November 13, 2008 10:04 PM

I just had my Chase and FIA Credit Bank of America lines cut to the bone. I have had lines cut from $26000.00 to 100.00~ I have never been late.I called about why they did thisto me.There anser was I have to many high lines of credit.After these thiefs takeing away my lines I guess I might have a little on my cards to buy a hot dog.I just got a new credit card from Hawii with a 12,600.00 line from First Hawiian Bank with an instant approval.This Bank has been in buisness sence 1865.They have 24 hour service.My APR is 3%

RICK

July 13, 2009 09:09 AM

I JUST GOT MY CREDIT LIMIT CUT BY THE BANK OF AMERICA FROM $36,000 TO $800 ... $100 ABOVE MY CURRENT BALANCE WHICK=H I PAY OFF EVERY MONTH! ONE OF THESE DAYS THE CREDIT CRUNCH WILL GO AWAY AND THOSE OF US WHO ARE VERY DILEGENT ABOUT PAYING ON TIME EVERY TIME WILL REMEMBER THOSE BANKS WHO SCREWED US FOR NO GOOD REASON.

Post a comment

 

About

What's it like to run your own company today? Entrepreneurs face multiple hurdles new and old, from raising capital and managing employees to keeping up with technology and competing in a global marketplace. In this blog, the Small Business channel's John Tozzi and Nick Leiber discuss the news, trends, and ideas that matter to small business owners. Follow them on Twitter @newentrepreneur.

BW Mall - Sponsored Links

Buy a link now!