After years of getting Americans hooked on credit, card companies are slashing limits and weaning themselves off all but the safest customers

Terry Mazzera has worked to keep her credit score above 730, paying bills on time, sending in more than the minimum credit-card payment each month, and keeping a comfortable gap between her balance and credit limit.

But a couple of weeks ago, the 62-year-old Hercules (Calif.) resident got a letter from a credit-card company saying that her limit had been cut from $9,500 to $6,500—just about $400 above the amount she owed on the card. The primary reason: She was a late on a payment on a separate department store card.

Debt-to-Limit Ratios

Her debt-to-limit ratio on the card suddenly zoomed up from 64% to 94%, and she expects her credit score will be damaged. The ratio is a key component that credit bureaus use to determine creditworthiness. “It’s not right,” said Mazzera, a project assistant at a construction company. “I worked very hard to keep my credit.”

Mazzera is part of a growing number of Americans who are seeing their credit limits slashed. Even people with good jobs, low balances, and solid payment histories could be seeing their credit scores slip through no fault of their own. About 16% of customers had their limits reduced between April 2008 and October 2008, according to a recent study by Minneapolis-based FICO, which developed the Fair Isaac scoring model used by credit bureaus to evaluate default risk.

But only a fraction of those customers would be considered risky. Jittery banks, eager to reduce potential risk, appear to be targeting many borrowers with low-balance or inactive accounts. About 11% of customers who saw their limits cut had no “risk triggers” during that period and generally had very high credit scores. Risk triggers include late payments, excessive cash advances, check bouncing, collecting unemployment, or having a mortgage in an area where property values are plummeting

Edocent

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