Consumers are having a tougher time getting credit – and keeping it

Looking to secure a little more financial flexibility by extending your credit line? You may find that credit is getting harder to come by.

In some cases, existing credit is being cut. Credit card holders have had their credit limit slashed or their card closed involuntarily.

Others can’t get the credit to begin with. Homeowners interested in a home equity line of credit, or HELOC, are finding some banks no longer take applications.

These moves by banks are an effort to rein in available credit as the economic impact from the coronavirus outbreak has made consumers’ ability to reliably make payments increasingly unpredictable.

“We had a sense that banks had already begun to change their offers,” said Matt Schulz chief industry analyst at CompareCards. “But we didn’t think that it was happening this quickly to this many people.”

Here’s what to know about your credit availability now.

Credit card issuers pulling back

Credit card companies are increasingly reducing cardholders’ credit limits or closing cards entirely, according to Schulz. And, yes, outside of a few exceptions, they can do both without notifying you, although they may give you notice.

“Users are left without a lifeline they may have been relying on to get them to the next paycheck or to an unemployment payment,” said Schulz.

Not only can that strip consumers of an important financial lifeline, it can also hurt their credit.

“In times of economic uncertainty, banks and lenders may become more conservative to minimize risk,” said Beverly Anderson, president of global consumer services at Equifax.

This includes decreasing credit limits on dormant accounts or accounts that aren’t being paid regularly, she said.

Banks are happy to give higher credit limits when times are good and unemployment is low. There is an excellent chance they’ll be paid back.

“But when you have more than 30 million people apply for unemployment, banks don’t know who is risky and who is not,” he said. “All that available credit now looks like a great amount of risk.”

The changes seem to be hitting consumers at all income levels. He said he’s even heard of people earning $100,000 or more who have had their limit slashed or card closed in the past month.

While credit card users in the wealthiest zip codes have nearly $14,000 of available credit to draw on, those in areas with annual incomes under $45,000, have only $1,900 of available credit, according to the New York Federal Reserve. The poorest users have, at most, $150 to draw on.

“Every issuer is going to attack it differently and some will go at it with a flamethrower rather than a scalpel,” said Schulz.

Bank of America, Chase and Capital One, did not immediately respond to requests for comment on credit cards.

HELOC applications paused

Another lifeline that homeowners sometimes rely on is a line of credit against their home’s equity.

But for some,that may no longer be an option. JPMorgan Chase stopped taking applications for HELOCs on April 16 and Wells Fargo on May 1.

“The decision to temporarily suspend the origination of new HELOCs reflects careful consideration of current market conditions and the uncertainty around the timing and scope of the anticipated economic recovery,” a Wells Fargo home lending spokesperson said.

At Chase, the bank is temporarily strengthening its credit standards across the board, a spokesperson said, “and in some cases, either pausing new applications or focusing on established customers only.”

Bank of America has said they will continue to offer HELOCs.

Finding alternative sources of cash reserves

One thing people can do to protect their credit card limit from being cut or their card from being closed is to use it.

“Use any dormant credit cards routinely to show that they are still active,” said Anderson. “Using them, even in small amounts, and paying them off quickly will show that you are responsibly utilizing this line of credit to avoid it being decreased or closed.”

If you were counting on a HELOC to provide additional money, but you aren’t able to get one now, you may want to look to a retirement fund like your 401(k). The Coronavirus Aid, Relief, and Economic Security Act, or CARES Act, allows people to pull up to $100,000 out of a retirement account without the 10% early-withdrawal penalty.

Alternatively, you may find a personal loan, including some being offered specifically to people impacted by coronavirus, that may help knit a safety net.

Most importantly, said Schulz, is to check your balances and credit limits regularly.

“If you’re going out to buy groceries and you haven’t looked at your credit limits in a little while,” he said, “make sure you’re not in for a surprise at the check out.”