Bank of America Credit-Card Customers Beware: A Credit-Limit Reduction Could Be Lurking (Update1 -- Includes Bank of America Letter)

During the past several weeks, Bank of America has been busy cutting credit limits. In many cases, the cuts have amounted to 50% of the limit. Ouch. This morning I got an email from a reader of mine -- a reader who has largely been immune to this kind of stuff. At least he was until this morning, when he noticed that Bank of America cut his credit-card limit by almost half.

Jack (last name withheld for privacy purposes) has been a customer at Bank of America for more than 20 years. His credit card has been open for about five years. He pays his Bank of America card in full each month.

(UPDATE: A friend of mine, who recently suffered a 50% limit cut, shared his credit-limit-reduction letter with me. Thanks, Shawnee. It's very obvious that Bank of America is targeting customers who are under utilizing their cards (read carry little to no balance). This could be just the start. Ultimately, Bank of America could make its way to customers who carry significant balances.)

Here is a copy of the letter (click to enlarge):


While other card issuers were busy raising rates and slashing limits last year, Bank of America largely left its customers alone. It would appear that Bank of America is making up for lost time now. Earlier this month, Bank of America said that it would lift interest rates on millions of customers. It's now busy reining in available credit. Welcome to the party, Bank of America.

"I was angry. I have used the card semi-actively for the past two years after using it regularly for the prior four," Jack told me this morning. "The account has not carried balance in at least two years. They could have at least given me warning -- especially considering they just sent me a stack of credit card checks touting my old limit. I am happy I chose to shred them; I believe using them would have caused even more problems, including the possibility that a returned check to a different creditor would have had a negative impact on my FICO."

Jack raises a good point -- and it's the reason I am writing: if you're planning on using one of those balance-transfer checks, be sure to check your credit limit before you do. Even then, of course, there is no guarantee that your limit will remain intact between the time you put the check in the mail and the recipient receives it. But, given this environment, that's about the best you can do.

To be sure, credit-card users should be checking their credit limits before they make large purchases, too. During the past six months, I've received plenty of email and seen plenty of comments on my blog saying that purchases didn't go through because card limits had been slashed without the customer's knowledge.

Jack says that he's leaning toward closing the Bank of America account. "Probably going to close the account even though I have no outstanding balance. It will continue to age for 10 years so it shouldn't affect my FICO, as it will not change my utilization much (the only balance I carry is a 36 months same-as-cash deal on Best Buy). I just can't see letting Bank of America earn exchange fees on me. I have never been late with these people. Why should I voluntarily give them anymore of my money?"

I told Jack that he should keep the account open. Out of principle, I think he'll close it. Given his low utilization elsewhere, his scores, which range from roughly 760-790, should be just fine even if he does close it, though.

Jack's story is not an isolated one. Bank of America, though inactive early on, is coming on strong. First it hiked rates. Now it is slashing limits.

It's a jungle out there. Be careful.

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