2021 Consumer Credit Card Report

Amid the economic uncertainty of the COVID-19 pandemic, credit card issuers reduced the credit limits of many of their cardholders. In fact, close to 1 in 5 credit card holders (19%) report that the limit on one or more of their credit cards has decreased since the pandemic began, according to a new NerdWallet survey. An additional 11% weren’t sure whether their limits had been reduced.

NerdWallet’s annual Consumer Credit Card Report examines the credit card landscape and its effects on consumer finances. In last year’s report, we looked at credit card hardship programs and their potential downsides. One of those downsides was that cardholders who asked for help from their issuers often had their credit limits cut. But it wasn’t just those who entered hardship programs who saw reduced limits.

“Credit card companies can opt to decrease your credit limit at any time, but it’s not necessarily because you did something wrong,” says Sara Rathner, a credit cards expert at NerdWallet. “During the pandemic, many card issuers were simply trying to reduce their risk in an uncertain economy.”

This is the 2021 edition of NerdWallet’s annual Consumer Credit Card Report. For other editions and more research, see our credit card data page.

In an April 2021 survey commissioned by NerdWallet and conducted online by The Harris Poll, we asked cardholders whether their limits had been decreased and, if so, how it affected their ability to pay for necessities and emergencies. We also asked how cardholders felt about the credit card companies that cut their limits and how this experience has affected their financial views.

Key findings

• Emergency funds to the rescue: Among those whose credit limits were decreased during the pandemic, nearly 2 in 5 (39%) say they had to use money from their emergency fund to cover necessities because of it, according to the survey. And 29% say decreased limits caused their credit score to drop.

• Next card up: According to the survey, more than half of Americans whose credit limits were cut (51%) say that, as a result, they’re using the credit card with the decreased limit less often and using a different card they already had more often.

• Looking to cash: More than a third of Americans whose credit limits were decreased during the pandemic (35%) say that, as a result, they plan to use their credit cards less in the future. Close to a quarter (23%) decided to keep more money in savings going forward in case their limit is decreased again, the survey shows.

Americans with decreased limits turn to savings, personal loans

Only about 1 in 8 Americans whose credit limits were decreased (12%) say their financial situation wasn’t affected by it. Others had to pull money from savings or take out a loan to cover necessary expenses. Nearly 2 in 5 (39%) say they had to use money from their emergency fund to cover necessities, and 29% say they had to take out a personal loan. Others say they were simply unable to pay for necessities/bills (24%) or emergencies (25%) due to their reduced credit limits.

Among those whose limits were reduced, parents of children under 18 were more likely than those without minor children to have had to use money from their emergency fund (51% versus 19%) or take out a personal loan (35% versus 17%) to cover necessities.

Reduced limits strain relationships with card issuers

A credit card issuer’s decision to cut your limit isn’t personal, but it can still feel like a betrayal, particularly during a global pandemic with widespread financial turmoil — a time when many people are leaning on credit cards to get by. As a result, many cardholders whose limits were decreased say it colored their relationship with their card issuer.

More than half of those whose credit limits were decreased (51%) say that, as a result, they’re using the credit card with the decreased limit less often and opting to use a different card they already had more often. Likewise, 37% stopped using the card with the decreased limit altogether and instead used a different card they already had.

Close to a quarter of Americans whose credit limits were decreased during the pandemic (23%) say they closed the account of the credit card with the decreased limit. Depending on how old the account is and how much of your overall available credit is on the account, closing a card can be harmful to your credit score.

Limit decreases alter financial strategies

Many of those whose credit limits were reduced say their financial views or strategy changed as a result. About a third of Americans with a decreased credit limit say they plan to use their credit cards less in the future because of it (35%) or have changed the types of purchases they put on their credit cards (33%).

For some, these credit limit reductions highlighted the importance of cash savings, particularly in times of emergency: 23% have decided to keep more money in savings going forward in case their limits are decreased again. And 16% who previously thought of credit cards as an emergency fund no longer do.

Most whose limits have decreased have also looked into or say they would look into alternative options for credit. Around a third say they’ve looked into or would look into a personal line of credit (34%), and almost as many say the same about a personal loan from a bank or credit union (32%).

Some of these options are more costly than others, and not all are available to all consumers. Those with good or excellent credit have better options than those with bad credit or thin credit files, and some credit options — like a home equity line of credit or auto title loan — are available only to those with specific assets.

What credit card holders can do

If you’re dealing with credit card stress, there are steps you can take.

Start or add to an emergency fund

Of Americans whose credit limits were decreased during the pandemic, 25% say they weren’t able to cover an emergency that came up during this time, according to our survey.

High-yield savings accounts may not have substantial rates right now, but if we’ve learned anything from the financial fallout of the pandemic, it’s that having cash savings to draw on in an emergency is incredibly important. No, the money in your savings account probably won’t earn much interest, but it’s helpful to view an emergency fund as insurance rather than an investment. You hope you won’t need it, but you’re grateful it’s there when you do.

Experts recommend working toward an emergency fund with enough money to cover three to six months’ worth of expenses. Check out NerdWallet’s emergency fund calculator to see what six months of necessities looks like for you. It can take time to build up that kind of fund, and that’s OK. Start smaller, like $500 or $1,000, and then contribute to your savings regularly until you’ve reached your goal. Having some cash available is more reliable than a credit card limit since the latter can change without notice.

“In a truly tough situation, you can turn to your credit card as a way to pay for the things you need when you don’t have the cash,” Rathner says. “But if your credit limit gets cut, that eats into your emergency reserves. It’s ultimately more reliable to have a supply of cash savings on hand.”

Understand credit utilization and how it affects your credit score

About 3 in 10 Americans whose credit limits were cut during the pandemic (29%) say their credit score decreased because of it, the survey shows. Your card limits directly influence one of the most important factors in your credit score: credit utilization.

Credit utilization is the amount of your available credit that you’re using at any given time, expressed as a percentage. So if you have a credit limit of $10,000 and a balance of $3,000, your utilization is 30%. The lower your utilization, the better. If your limits are decreased, paying your balance down can improve your credit.

Unless you need your credit score to be as high as possible right now for a specific reason — for instance, if you’re applying for a mortgage in the near future — you probably don’t need to worry about a temporary dip. A healthy credit score is meant to serve you when you need it, so if your credit goes down because you’re unable to pay off your debt faster, so be it.

That said, if you do need your credit score to be at its best right now and your limit hasn’t gone back up, making extra payments on your balance is a good idea, if possible. You might also evaluate how much you’re adding to your balance.

“This could be the time to take a hard look at your spending, which could work for you in two ways,” Rathner says. “First, it can free up some money in your budget to put toward paying down credit card debt. Second, lowering your spending means you charge less, and that lowers your credit utilization, too.”

Think twice before closing a card

Of Americans whose credit limits were decreased, 23% say they closed the account whose limit was decreased, according to the survey. Closing accounts can hurt your credit score in several ways. First, it reduces your total available credit, which can increase your utilization. The age of your credit accounts — the older, the better — is also a factor in your score, as is your “credit mix,” or the types of accounts you have open. Closing a card can therefore have an effect, especially if it’s among your longest-lived accounts. Unless a card has an annual fee, it’s generally advisable to keep the account open.

Check out alternative credit options

The survey reveals that most Americans who dealt with credit limit decreases during the pandemic (88%) looked into or would look into alternative options for credit.

Credit cards can be a good option for short-term financing. They’re relatively accessible, and they charge interest only on the amount of credit you’re using at any given time. But there are other options worth exploring, like personal loans and home equity lines of credit. NerdWallet’s guide to making debt less costly in an emergency organizes options by different personal situations or credit profiles.

“Many Americans are just beginning to clean up the financial mess from the pandemic, while some will feel the effects for years,” Rathner says. “Thankfully, even small actions, like working toward replenishing an emergency fund, reevaluating your credit cards and seeking out other loan options, can make a big difference in your recovery.”

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