Credit card companies withdraw £3.1 billion in credit limit cuts

Credit card companies have clawed back some £3.1 billion worth of credit by cutting the spending limits of their customers, according to MoneyExpert.com.

The independent financial comparison website says around 1.8 million credit card customers have had their credit limit reduced in the past six months by their card provider, with the average reduction around £1,600.

The research is yet more evidence of the clampdown by credit card companies on customers who they fear may not be able to repay debts, and MoneyExpert.com is warning that more pain could be on the way.

Sean Gardner of MoneyExpert.com, said: “Overstretched consumers might look to resort to credit in a bid to make ends meet but they should not rely on it as a way of keeping spending.

“Credit card companies are becoming stricter in who they lend to and the amount of money their customers can borrow.

“The credit card market is very competitive as people turn to interest free deals to tide them over some tough economic conditions. And there’s nothing inherently wrong with taking advantage of a zero per cent credit card for a year as long as spending is controlled.

“The credit card market is very competitive as people turn to interest free deals to tide them over some tough economic conditions. And there’s nothing inherently wrong with taking advantage of a zero per cent credit card for a year.

“The warning lights should be shining brightly however if you find you’re going from card to card without making a dent in the amount you owe. If you don’t have a repayment plan in place it is time to get one.”

According to the MoneyExpert.com figures, four per cent of all British adults have had their credit limit cut in the past six months, amounting to around 1.8 million customers.

Typically customers who had their credit limits reduced saw their limit cut by £500 or less. And the MoneyExpert.com research shows that almost half (47%) of credit limit cuts are no more than £1,000. But with some 15 per cent of those experiencing reductions having their spending limits cut by more than £2,500, the average reduction is £1,680.

Young borrowers are most at risk of having their limit reduced, with some six per cent of 25-34 year olds – around 568,600 people – saying their provider has reduced their spending allowance.

Sean Gardner added: “Our Switching Index shows that around 980,000 people switch credit card provider each month. With so many people needing credit to you have to wonder whether they are managing their money well or merely papering over some serious financial cracks.

“However it is almost always the case that you will save money by switching to a new credit card. It needn’t affect your credit rating to switch and credit cards can at least help people to stave off hard times. The best deals offer you interest free credit for as much as 15 months.”

MoneyExpert.com says that regularly reviewing providers for a range of services is good practice but warns consumers that it might not always make financial sense to switch.