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Credit card holders are having their borrowing limits slashed as lenders try to protect themselves from potential exposure to bad debts.

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The tightening of limits is even affecting customers with good repayment records and comes on top of a stricter attitude to issuing cards to new borrowers.

Credit card companies say there has been no official change to the way they set limits for their customers and they are simply carrying out their usual, regular reviews of spending habits.

But credit reference agencies have reported a noticeable squeeze and say the credit card companies are reviewing limits in a more frequent and detailed way. They also warned that card holders who do not provide enough profit for lenders now face seeing their levels of credit cut.

The move comes as bank profits come under increasing pressure from the credit crunch, which has made it more expensive for finance houses to borrow from each other. The financial comparison website Moneyfacts.co.uk said the credit crunch was beginning to cause "credit card chaos".

"Most lenders are scrutinising customers' credit reports ever more closely and on a more frequent basis," said James Jones, the consumer education manager at Experian, the information services company.

"Lenders are under pressure to avoid lending to people who can't afford to repay."

Morgan Stanley is among lenders who have slashed limits for many of its card holders. Some saw their borrowing limits cut by thousands of pounds last week. The process led to some customers having their limits cut by mistake.

John Cartwright from Yelverton, Devon, who had no previous credit problems, saw the limit on his card cut from £8,300 to only £600 before the lender realised its error and corrected it.

In the past two months, the credit card market has had 125 fee and rate increases, according to Moneyfacts.

Another financial comparison website, MoneyExpert.com, said that over the past six months credit card rejections jumped by 17 per cent to 3.3 million.

Barclaycard, Britain's biggest credit card provider, is now rejecting 55 per cent of new applicants and has reduced credit limits for half a million customers since the start of 2006.