For the second time this year, I've had a credit line reduced. I can't think of why. My accounts are paid off monthly, my FICOs are all in the 800s. By any measure I'm a good risk, what does it matter if my credit limit is high? I have a long solid history of responsible credit use.
Why did Wells Fargo close all personal lines of credit? I'm sure that some of the customers Wells Fargo is ditching are excellent risks. Is there a financial calamity on the horizon that banks are posturing for?
Part of the story here is that Wells Fargo is subject to a $1.95T asset cap (from the Fed following on that 2016 account opening scandal). They have to be choosy about assets as they sit right at that cap ($1.945996T on their last 10-Q). Those personal loans were on their books as assets. The cap means that they are motivated to "free up space" for higher performing assets, meaning even if they make money off personal lines of credit, they might not want them as they make less money off those than other products.
Concerning credit card line decreases, those can be triggered by any number of things, but typically it means the bank is trying to reduce their risks. Even if individually you are not any worse of a credit risk, there are global considerations. For example, those deferred/forgiven home loans (from the pandemic) are coming up in Aug/Sep, so there may be an element there of trying to get ahead of any fallout.
Credit limits are a representation of how willing to hand you money a given institution is. While it's tempting to think of your activity and creditworthiness as the only factor in that decision, the company's own situation, and/or expectations of future economic conditions can also inform things.
If lender feels that they need to restrict their exposure to credit risk, altering their internal formulae that determine what credit limit they will give out is a reasonable strategy.
If there's nothing deleterious in your credit history, it's possible that it's not you, it's them. This doesn't mean anything sinister or apocalyptic per se, it could just reflect a new management strategy, etc.
Credit institutions need to hold capital on all of their credit exposures. A unused credit line is still an active credit exposure that the institution need to hold capital for (off balance exposure). This capital can obviously not be used for anything else, hence there is a opportunity cost on it (how much could they earn by distributing the capital differently). Credit institutions seek to reduce unused facilities, since they don’t actually generate interest income on the unused facilities, but they still need to reserve capital (i.e. they lose money).
If you are actively using the credit line often and it still gets reduced, then the explanation may not be as straight forward; could be a number of different reasons why.
