Research and Statistics

Credit card issuers, customers max out for the holidays


Credit card issuers cutting credit lines. Cardholders strapped for cash. Both sides of the credit card equation are being squeezed, causing some uncomfortable situations at the cash register this holiday season.

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Credit card issuers cutting credit lines. Cardholders strapped for cash. Both sides of the credit card equation are being squeezed, causing some uncomfortable situations at the cash register this holiday season.

Some credit card users are over their limit this holiday season
For retailers, handling maxed-out and multiple card requests requires diplomacy
When customers hear that their credit cards are turned down, one of their first reactions is to pay with another card — or even with multiple cards.

For retailers, this represents a dilemma. Do you honor the request or refuse the transaction?

By and large, retailers don’t allow the use of two or more credit cards for a single transaction. In some cases, authorization may be granted by management, or  …

  • When the customer bills a portion of the transaction amount to a credit or debit card and covers the remainder of the transaction by check or by cash.
  • When the purchased item is delivered after the transaction date. In that case, one sales receipt acts as a deposit, and the other receipt signals a payment of the balance.

Creative customer service can conquer a multiple card problem. “There are things you can do as a retailer to make the customer experience easier,” says Bruce Cornelius, chief marketing officer at “You can ask for cash, or offer to hold the merchandise for 24 hours, or even offer a discount if that gets the deal done. But the customer has to understand that, in the end, the retailer has to pay his or her bills, too.”

With card companies looking to cut $2 trillion in credit lines and more borrowers maxed out on their cards, something’s got to give, and right now it’s the increasing number of U.S. consumers maxing out on their credit cards.

According to a 2008 Gallup poll, nearly one in three credit cardholders held high balances, with 25 percent saying they revolve a balance and 12 percent saying they typically pay only the minimum amounts due on their monthly card bills. A Standard & Poor’s survey also notes that as home prices decline and home equity dries up, consumers are turning to their credit cards as sources of cash, with 10 percent more people taking out cash advances than in the past.

Hence the increasing problems at retail cash registers. “This is a record-breaking year with people coming to us with credit problems,” says Cate Williams, vice president of financial literacy at Money Management International. “We tell them the same thing: A credit card agreement is a business relationship. The creditor says you can use our money to buy stuff, but you’ll need to repay it. As long as you do that, we’re friends.”

“But if your situation changes, and you’re unemployed or under a heavy debt load, it’s a different relationship — think of it as the card company’s way of saying ‘Darling, have you gained some weight?”

Retailers try to cope
For retailers, dealing with frustrated cardholders at the cash register is the stuff of nightmares. In the retail game, job No. 1 is to provide the consumer with a pleasant shopping experience. But telling your customer that their money is no good, even though it’s not the retailer’s fault, leaves the customer with a bad taste.

For Ann Taylor, chief executive officer at New York City-based Savvy & Co., a designer fashion outlet, the combination of the holiday season and the bad economy is bringing a lot of customers — and potentially some credit card troubles — to her store. “Our prices are so low that we do get a lot of people coming to us,” she says. “But with today’s economy, people are coming out with three credit cards and maxing out, even when they use multiple cards.”

Taylor says that being lenient with customers is still the best move, and the company will try to work with and accommodate customers as painlessly as possible. That’s particularly true on issues such as the use of multiple cards, trying to help maxed out card customers, and customers with item returns. “We only use credit and don’t use cash, so that’s our policy,” she adds. “The more customer service you provide in these times the more loyalty you’ll have. These are tough times, and as a retailer customer service is key — it can allow you to ride the tide of this recession and come out ahead. But if you’re too stringent you will lose loyalty.”

Consequences of maxing out
For consumers, maxing out on a credit card is a big no-no — an act of personal financial malpractice that requires immediate action before the situation grows worse. When you max out a card:

  • The credit card company can charge a significant over-limit fee and raise your interest rate to flying reindeer heights.
  • Other credit card companies can smell a maxed-out card a mile away. They’ll use the situation as an excuse to raise your limit on their card, amplifying the problem.
  • A maxed-out card can have serious repercussions for your credit score, as your ratio of debt to available credit is one of the most scrutinized benchmarks for credit score companies when determining where you stand.

Then there’s the “social embarrassment” factor — when you’re turned down at the counter at the local boutique, the retailer is under no obligation to tell you why. All they can tell you is that your card is no good, leaving you to either use another card, or try to pay your bill with multiple cards — another big no-no in retail circles.

Do people still actually get rejected right there at the store counter? It depends, says Pam Girardo, a spokeswoman at Capital One. “Attempting to go over limit is a risk indicator, whether or not we approve the transaction. An over-limit fee reflects this increased risk. Because of the risk, we reject a majority of over-limit transactions, including all such transactions when the customer is already in over-limit status.”

There are caveats, Girardo adds. “In some cases however, the transaction is approved and an overlimit fee is assessed. Our experience tells us that customers value the flexibility to go over limit as a way to deal with unexpected emergencies or avoid the embarrassment of being turned down at the point of sale.” She also makes it clear that the burden of knowing credit limits falls on the shoulders of card customers. “We notify each cardholder of his or her credit limit at the inception of the account and on each monthly statement,” she adds. “Capital One also provides a notice of to individual cardholders on every monthly statement that clearly states the amount of credit that remains available for use.  And our online services provide up-to-the-minute information.”

With today’s economy people are coming out with three credit cards and maxing out, even when they use multiple cards.

— Ann Taylor
CEO, Savvy & Co.

Bruce Cornelius, chief marketing officer at, a credit report distributor, says that in many cases, it’s the lenders, and not the customers, who are to blame for maxed-out cards. “Banks are struggling right now and trying to reduce risk,” he says. “So they are tightening credit card criteria even with people who have good credit. If you have a $10,000 line of credit, and the card issuer cuts it back down to $6,000, that’s a problem for consumers who didn’t see it coming. Around the holidays people use their cards a great deal, so that’s a big reason why we’re seeing more maxed-out cards.”

Cornelius advises nipping the “maxed-out” problem in the bud by knowing where you stand before a Target or a Banana Republic turn you down at the counter. “Get information beforehand from your card issuer right over the Web,” he advises. “You may think you have $7,000 in credit when you only have $5,000 in credit. Card companies are obliged to let you know if your credit line is being reduced, but around the holidays, people aren’t always aware of what their limits are.”

One particular response to hearing that your card is maxed out is for customers to immediately get on the phone and ask their issuer for more credit. But that tactic is increasingly likely to fail, Cornelius says. “Because banks are struggling so they are less likely to grant you more credit over the phone — right there when you just faced rejection at the store counter. We are finding that consumers are being told that option is increasingly not available.”

MMI’s Williams advocates keeping in touch with your card issuer and staying away from asking your card company for more credit. “Understand that anytime you change the terms of your agreement, you’re giving the card company more control, and that could impact your credit score or interest rate. And that could affect your ability to get credit down the road, especially from that creditor.”

Williams also advises against using multiple cards as a form of payment this holiday season. “Using multiple cards is a death knell in your financial life,” she says. “If you’re at that juncture, go home, pick up the phone, and tell your family and friends that the holidays are too much this season. By Valentine’s Day, nobody will remember what you got them, anyway.”

Above all, arming yourself with information and keeping well below your maximum credit limit is the best way to avoid that messy scene at the store counter. “People want to keep their credit cards in good standing,” says Williams. “But to do that you need to know where you stand.”

See related:Use it or lose it: Issuers quick to close dorman accounts, Lower credit limits can hurt consumers’ credit scores, Crisis survival tips: Pay off debt, cut credit card spending

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