Credit Card Companies Change Limits, Change Lives

March 3, 2009 — -- Millions of Americans have seen their credit card limits lowered since the economic crisis began, as credit card companies have tried to protect themselves against risk.

And it's having a devastating ripple effect on consumers' credit.By lowering people's credit card limits, banks are also lowering people's credit scores in many cases.

And that means these families will pay tens of thousands of dollars more for things like mortgages and car loans.

Mary and Sean Craig, of Ashburn, Va., yearn for their daughter, Sephie, to have a sibling close to her age. But today those plans are on hold because they don't want to bring another child into the world while their finances are uncertain.

"We both really want another baby," said Sean Craig. "And we just can't at the moment."

The Craigs' credit card company cut their limit by more than half -- slicing it from $15,000 down to $7,000 -- not because their situation had changed but because the company's had.

"I called the credit card company and asked them why they had reduced my credit limit," Sean Craig said. "And she said that it was due to the current economic crisis."

The lower limit had a ripple effect, causing the Craigs' credit score to plunge from a healthy 720 to a less flattering 683.

Why? Because one of the biggest factors in your credit score is the amount of debt you carry compared to the amount of credit you've been approved for.

This ratio of credit to debt is usually an important indicator because it catches people who have charged up their cards to the hilt. But the Craigs hadn't charged up their card. Rather, the bank had dropped down their limit, so suddenly they were much closer to that limit through no fault of their own.

Already, the Craigs have felt the first repercussion. They had been working to get a bank loan to consolidate their debts, but with their new, lower credit score they were turned down.

"Because it's down we can't get our loan," Mary Craig said. "And because we can't get our loan, we can't have our baby."