Will credit card lenders pull the rug again?

Posted in 'Credit Crunch' by Barry Stamp

16 November 2011

The unwelcome practice of credit card issuers cutting limits with little or no warning seems to have gone away, at least for the moment.

In 2009 we reported that an increasing number of consumers had been in touch to ask for our advice, after finding that they’ve been turned down in shops when using their credit card – despite thinking they had plenty of available credit.

One example saw a Halifax cardholder with a near perfect credit rating left red-faced at B&Q after the bank cut his credit limit by £5000 with little or no prior notice. The terms and conditions of most card issuers will show that they’re not obliged to give you any warning that your limit is going to be cut.

The credit limit cuts and forced account closures seen in 2009 and 2010 came about as lenders sought to further reduce their potential liabilities. In the US, card giant American Express went so far as to offer some card holders $300 to settle and close their accounts.

Egg, too, took an axe to its cardholders and closed down thousands of accounts, some for very creditworthy customers. Whether that was anything to do with the subsequently (and recently) announced sale of their card business to Barclaycard can only be conjecture.

Although the Halifax case we’ve highlighted here caused only embarrassment, the Egg move came as quite a shock to some of its loyal customers, could it happen again? Yes is the short answer, as banks continue to manage their balance sheets in the light of the ongoing Eurozone uncertainties and the threat of a continued downturn.

Increasing number of consumers are reliant on the extra breathing space that their credit card provides. With this in mind, it’s no longer sensible to rely on a single credit card for unexpected expenses or even day-to-day spending.

For peace of mind, find a new credit card matched to your credit rating to back up your existing spending power. If you’ve not done so in the past 3 months, you should check your credit report online too to make sure that all is as it should be, so that there’s no reason for your card provider to pick on you and to get the best possible chance of a high credit limit and a cheap interest rate.

Get a back-up credit card now.