Research and Statistics

Capital One, Discover tighten credit limits, close dormant accounts


Amid a rise in both interest rates and consumer debt, Discover and Capital One are tightening their grip on how much credit they’re making available to consumers.

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Capital One, Discover cutting credit limits, closing inactive accounts

Amid a rise in both interest rates and consumer debt, two credit card issuers – Capital One and Discover – are tightening their grip on how much credit they’re making available to consumers.

In an attempt to reduce financial risks, Discover has “selectively” closed inactive accounts representing about $30 billion in credit limits since early 2017, executives said Oct. 25 on the company’s quarterly call with Wall Street analysts. Capital One also has trimmed the number of dormant credit card accounts in its portfolio.

Meanwhile, both Capital One and Discover are being more strict with credit limits for new cards as well as increases in credit limits for current accounts. (Generally speaking, credit card issuers are free to cut your credit limit at any time without telling you.)

Bruce McClary, vice president of communications at the National Foundation for Credit Counseling, said Capital One and Discover are “attempting to limit their risk in an environment where more and more people have been opening lines of credit in recent years.”

McClary said it’s unclear, though, whether other card issuers already have joined – or eventually will join – Capital One and Discover in curbing credit limits and unused accounts. But the actions by these two issuers might signal “less generosity” in terms of credit availability for current and future cardholders, he said.

See related: Banks tighten standards for credit card applicants, Fed survey says

Rich Fairbank, chairman and CEO of Capital One, on Oct. 24 told Wall Street analysts that the company has been exercising more caution with credit limits for the past two years. But within the past year or so, he added, Capital One has “further dialed back” initial credit limits and hikes in credit limits.

Why? Fairbank cited “intuitive concern” about the marketplace. Many economists predict another recession will strike by 2021.

At Discover, President and CEO Roger Hochschild echoed Capital One’s strategy, saying that his company has been “tightening the credit box” over the past couple of years and doesn’t plan on changing that strategy now, given how far along the U.S. is in the current economic cycle.

Capital One’s Fairbank said he and his team are “struck by just how good the economy at this point is, and in some ways, it almost feels too good to be true.”

McClary said Capital One’s and Discover’s moves could be “proactive measures” aimed at preparing for an economic slowdown or recession.

The fresh acknowledgments by Capital One and Discover align with trends being witnessed across the credit card industry. As the American Bankers Association (ABA) reported Oct. 25, card issuers are showing some restraint regarding how much credit they extend to customers in certain risk categories, namely new prime and subprime.

“The industry continues its diligent approach to credit underwriting, which is reflected most recently in declines in average credit lines for prime and subprime borrowers,” Jess Sharp, executive director of ABA’s Card Policy Council, said in a news release.

McClary said the steps taken by Capital One and Discover underscore the importance of monitoring your credit utilization ratio, a key component of your credit scores. That’s because the lowering of credit limits can bump up the ratio without adding even $1 to your existing balance.

In light of that, McClary offered this bit of advice: “Make plans to pay off your balance now.”

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