Once upon a time, credit card issuers typically only trimmed credit lines on customers whose behavior suggested they might become a credit risk. For example, late payments, going over an existing credit line, bad credit – those types of things might have triggered the bank to lower the amount of money they were willing to lend.
It seems pretty much everyone is in the crosshairs of the banks.
They’re now looking at people who have excellent credit and spotless repayment histories. Customers who never carry a balance (i.e. they pay in full each month), pay on time, and have FICO scores as high as 830 are receiving letters indicating their lines of credit have been reduced. I know three people fitting that description who have received such notification in the past few weeks.
There are consequences to that action. If you’re one of the people who got such a letter, you know this first-hand. Because when the bank pulls back your line of credit, your FICO score takes a hit.
Roughly one third of your credit score is based on the percentage of credit limit you’ve used. So a lower credit limit can lead to a higher utilization ratio and negatively impact your score…with absolutely no change in your purchase or payment behavior.
What does this have to do with your job search?
If your prospective employer conducts a routine background check as part of its due diligence, your credit report is part of that screening. (Lest you think this is a minor issue, think again. More than 40% of American employers routinely check the credit reports of job candidates.) And if the bank trimmed your line of credit, your score was almost certainly negatively impacted.
With the job market as competitive as it is right now, you don’t need anything dragging you down…like a lowered FICO score…especially when there is absolutely nothing different about your repayment behavior.
There’s a second issue: small business owners. Lines of credit can be lifelines enabling them to deal with cash-flow issues. Like making payroll. Reduced line of credit may mean a forced reduction in head count.
So if you’ve played by the rules, built up your credit score, and consistently paid your bills – too bad. If they reduce your line of credit, the bank that issued you that card can have a negative impact on your job search.