Banks Reduce Credit Limits

Recent news indicates that credit card companies may be reducing credit limits on consumer accounts in response to the troubling economy. Consumer Action, a non-profit consumer advocacy organization, conducted a study this past summer entitled, "Consumer Action's Credit Limit Survey." According to this survey, 18% of the 1,083 participants revealed that their credit limits had been lowered by their banks this year. Consumers that plan to apply for new loans or credit may also face more stringent guidelines. A July 2008 Federal Reserve Board survey indicates that 65% of domestic banks had tightened their lending standards on credit card debt loans during the previous three months.

Is this good news? For years, many credit card companies have enticed consumers to spend by increasing credit limits and charging a relatively low minimum monthly payment. The convenience of credit cards have allowed some consumers to charge luxury items they would not normally buy with cash, cover emergency expenses, or pay for necessities such as groceries or gas during tough economic times. Shrinking credit lines could be viewed as a positive step in the right direction as many consumers may be required to live below their means.