Have you checked your credit line on your credit cards lately? If not, you may have missed an unexpected, even unrequested, increase in your available credit. But, before you rush out and use that extra available credit, you might want to reconsider.
In the last few months, without much fanfare, many banks have begun automatic credit limit increases for customers who are near or at their credit limit. These “Proactive credit line increases” (PCLIs) were very common prior to the 2008 credit crisis, and infact, post-crisis rules essentially stopped the practice of increasing credit limits without customers requesting the increase.
However, since credit cards are among the most profitable loans originating in the finance industry, and with interest rates at a 20 year peak, banks have begun to find loopholes in regulations, allowing them to issue these proactive credit line increases to those consumers already carrying high levels of debt.
And why is that? It’s all about the money. Last year, US banks made approximately $179,000,000,000.00 (yes, that is billions) from credit card interest and credit card fees. This year, that number is expected to be even better for banks! Of course, that’s not so great for consumers! Credit card debt levels are the fastest growing form of debt in our country, currently at a record high ($880,000,000,000.00 as of September, 2019), and that number will only continue to rise as people go out and utilize those credit line “surprises” that arrive with their monthly statement.
Unfortunately, many of these PCLI’s are in the subprime credit sector, where companies are extending additional credit to those who may already be overburdened by debt, who may miss payments, who may incur high penalties, etc. All of which are extremely profitable for banks. In fact, the number of people aged 19-29 in the USA who are more than 90 days late on their card payments just reached a ten-year high.
What should you do? While that little surprise credit line increase may tempt you to go on a shopping spree or two, your best bet is to do nothing. That’s right, don’t do anything. Don’t spend it. Don’t reject it. Just continue on your normal budgetary path and keep trying to pay those balances down. Remember, the ideal situation to be in is to keep your credit card balances to an absolute minimum, and then pay them off every month (or as quickly as possible).