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Americans are having a harder time paying their credit card bills. Recent data from the Fed shows that credit card delinquency rates have reached the highest level since 2012. When people can’t pay their credit card debts, banks lose money — and that means banks are starting to reduce credit limits and even close some credit card accounts.
Could your bank close your credit card account? Let’s see what this latest trend might mean for you — and how to keep your cards open and your credit score high.
Citigroup is cutting back on credit cards
As part of the larger trend in delinquent credit cards, Citigroup announced earlier in July that it is cutting back on credit card lending. This move by Citi will include closing more unused credit cards, decreasing some customers’ credit card limits, and tightening standards for issuing new credit cards.
Why is Citi closing credit cards? It’s because Citi has seen rising chargeoff rates (“losses” or bad debts) from its credit card customers. When banks start losing too much money on credit cards, they typically respond by tightening credit standards — lowering credit limits, raising underwriting standards, or both.
Other banks are likely to follow Citi’s lead. A recent survey of banks from the Fed found that 21% of all banks (and 32% of large banks) tightened their lending standards for new credit cards during the first three months of 2024.
What tighter lending standards mean for your credit card
Here are a few tips to keep your credit cards from getting closed — and keep your credit score from getting hit by this current round of credit tightening by banks.
Use your “old” credit cards
If you have a credit card that you haven’t used in awhile, you might want to use it for some small purchase, not to rack up credit card debt, but to keep that line of credit active. Letting your credit cards go unused for too long can lead a bank to close your account — and this can hurt your credit score.
Having a longer or “older” credit history, with credit cards that have been open for many years, can improve your credit score, because it shows the credit bureaus that you have a longer-term track record of managing credit responsibly.
Don’t max out your credit cards
If you’re spending a little too much of the available credit limit on any of your cards, you might want to pay down those balances as fast as possible. Try not to use more than 30% of your available credit across all of your cards, or on any one credit card. If you are maxing out your credit cards, even if you can pay off the balance on time, you could be at higher risk for the bank to lower your credit limit.
Banks reducing your credit limit can hurt your credit score, because it’s a sign that banks don’t believe you’re creditworthy to borrow the full amount that they’d previously approved. Getting your credit limit cut is a bad sign that banks feel like you might be in financial distress or becoming a riskier borrower.
Banks are allowed to lower your credit limit at any time. But keeping your balances low (below that 30% credit utilization ratio) and paying your credit card bills on time can help avoid this situation.
Keep an eye on your credit score and try to raise it
People who have good credit scores are generally more likely to keep getting approved for new credit cards, even if banks raise the standards. Everyone should monitor their credit report and know their current FICO® Score. If you don’t know what your credit score is, now is a good time to find out. And you can get free copies of your credit reports at AnnualCreditReport.com.
Bottom line
Don’t panic, even though credit delinquencies are up, and some banks are cutting back on credit card lending. This new trend among banks is likely to be more of a temporary adjustment to credit standards, not a drastic cutback in credit availability like what happened in the 2008-2009 financial crisis. But some credit card customers might see their credit limits reduced and unused cards canceled without much (or any) notice. Take action now to keep this from happening to your credit cards.
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