Barclaycard cuts cardholder credit limits

The consumer credit crunch appears to have arrived as there is evidence to suggest that lenders are starting to tighten their belts.

In the past year Barclaycard, the UK's largest credit card issuer, with 10m cardholders, has cut the credit limits of half a million existing customers. In some cases, Barclaycard has reduced credit limits below existing borrowing levels, forcing customers to frantically reduce their balances below their new lower limits.

The card issuer is also adjusting the acceptance criteria for people applying for cards and now rejects more than half of applicants. Furthermore it is keeping a closer eye on existing cardholders' debts.

The strategy is seen as an attempt to prevent bad debt from exceeding the £1½ billion Barclaycard recently revealed to investors.

A spokesman for Barclaycard commented "It is one of a number of initiatives we took, and on an individual basis we will continue taking action when a customer shows signs of getting into difficulty and their level of debt is getting worse".

"We move limits all the time with individual reviews. Last year the system changed as we were allowed to share information around the industry, so we can see when people are applying for lots of credit cards at the same time, for example if they are getting into trouble," he added.

For years, banks have given unsolicited credit limit increases to their existing customers. The move by Barclaycard signals a change in banking behaviour, as they cut their exposure to those they regard as above average risk.