FICO study: How credit line decreases can affect FICO scores

FICO^® often researches how well FICO scores are doing their job. We recently studied how FICO scores may be affected when lenders reduce credit card limits or close the credit accounts of people whose credit reports contained no recent indications of risk, or "risk triggers."

For this study, a risk trigger was a late payment, collections account or public record posted to the person's credit bureau report between October 2008 and April 2009.

We found the following:

• About 20 percent of American consumers experienced a reduction in their credit limit on at least one account between October 2008 and April 2009.

  • One-fourth of them also had a risk trigger added to their credit report during that period which may have prompted their lender's credit limit reduction.

  • Three-fourths of them had no recent risk trigger that was visible to us on their credit reports.

• We then looked at that group whose credit reports had no recent, visible risk triggers. We found that lenders were targeting borrowers who had inactive credit card accounts or accounts with low balances. On average, this population already was very low risk with a median FICO score of 760. Their credit card accounts typically had very low balances, low credit-utilization rates, few if any missed payments, and a long credit history. As a result, the lenders' action had minimal effect on that group's FICO scores.

• On average, the total revolving credit available to a borrower in this population (no risk triggers) was reduced by $5,100. That is about 14 percent of the average total revolving credit available to this population during the study period.

• Many people in this group were maintaining or reducing - not increasing - their credit card balances at the same time. This credit behavior helped to offset the impact that the reduction in credit limit had to their FICO scores.