Possible Cause of Credit Limit Reductions or Account Closures

Why did the credit card issuer do this to me? This is certainly one of most common questions we're getting these days as credit card issuers are continuing to lower credit limits, close accounts, and increase interest rates. While many of you would assume that their decision is simply credit related, that's not the case. There are many other reasons why the credit card issuer may have taken an adverse action against you. I've drafted a list of the possible reasons:

1. Credit Score Related – Credit score falls below minimum score threshold. Action could be based on how far below the threshold the consumer falls.


2. Credit Data Related – A new delinquency hit the credit report; a new inquiry hit the credit reports; a new credit card hit the credit report; the consumer increased the amount of debt he or she is carrying; the consumer's credit card utilization increased on one or all cards. NEW – The consumer's credit report shows too many accounts in dispute.


3. Geography and Economy Related – Consumer lives in an area where home values have descended (no equity). Consumer lives in an area where the unemployment rate is disproportionately high.


4. Non-Credit Related – Credit card issuer finds out that consumer has lost his or her job; wants to take part in a hardship program; took a pay reduction; got divorced; might be laid off. Other reasons: the consumer has account inactivity; uses the card too infrequently (under usage); pays in full each month; or is otherwise not profitable.


5. Issuer Related – Issuer determines that your account cannot remain profitable under current terms. Regarding rewards cards, the issuer's terms changed with the rewards partner.


6. Consumer Usage Related – Consumer violated terms of card agreement (gas rewards cards); usage pattern modeling determines unacceptable risk (CompuCredit); consumer missed a payment with the issuer specifically; consumer's payment practices change significantly (converts from transactor to revolver or vice versa).

Do you fall into any of these categories?

John Ulzheimer – Credit scoring and credit reporting expert and author, John is the President of Consumer Education for Credit.com. Formerly with Equifax and Fair Isaac, John shares his unique insight of the inner workings of credit scoring models and the credit reporting industry on CreditBloggers.com.