What to Do if a Credit Card Issuer Lowers Your Credit Limit
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If a credit card issuer cuts your credit limit, you won’t be able to charge as much on the card, and you might see your credit scores drop. This happened to many cardholders in 2020 amid the economic uncertainty of the COVID-19 pandemic, for example.
A lower credit limit could be bad, depending on how much other credit you have available. But you have a few options. The main one is to call the number on the back of the card and ask the issuer to restore your previous credit limit.
Just understand the context:
When it comes to granting credit, you don’t hold the power in the relationship. The bank does.
Try not to take the credit cut personally. This is business, not a reflection of your worth as a person.
There are plenty of other credit card issuers.
How to appeal a credit cut
You may not receive a notification that your credit card issuer intends to decrease your credit limit. But when you find out, here are a few tips on getting your previous credit limit restored:
Create a plan. Before you ask the issuer to reinstate your credit limit, brainstorm a few reasons why it should. If you were the bank, what would persuade you? For example, maybe you’ve been a customer for five years and never missed a payment.
Call. Generally, you might get more favorable results if you speak to a human. That means appealing the old-fashioned way: Call the number on the back of the card and speak to a customer service representative.
Make your case — nicely. Take advantage of any leeway the card issuer’s human representative might have. Remain calm and cordial as you lay out reasons that your credit limit should be restored. Again, this is a business discussion.
Calling to make an appeal mostly falls under the “it doesn’t hurt to ask” category. However, if the issuer pulls a credit report as part of its evaluation process, that could ding your credit, at least temporarily.
You have certain federal protections from an issuer charging "over-the-limit" fees after it reduces your credit, but over-limit fees are rare anyway.
Why your credit scores might drop
If your appeal fails, you might see your credit scores drop because of a factor called credit utilization ratio. Credit scoring models generally penalize you for using a large portion of your available credit, both overall and on a per-card basis. So your scores may fall just from approaching your credit limit, which you are more likely to do when that limit is lowered.
In general, it’s wise to keep your balances below 30% of your available credit.
How to safeguard your credit
You could minimize the ripple effects on your credit utilization ratio. A few ideas:
Open a different credit card account. This is an easy way to boost your credit availability. Your credit scores might take a temporary hit of a few points for opening a new account, but in the longer run, more credit will help your scores.
Ask for increases from other credit accounts. You might be able to offset the credit cut from one card account by asking for and receiving raises in your limit on other existing credit accounts.
Pay down the balance. Reduce spending on the card with the lowered limit and pay off the balance, or at least some of it. Besides eliminating debt, paying down a card balance gives you more headroom against your new, lower limit.
Don’t get mad and close the account. Closing the account not only means you’ll lose the entire credit line, but you’ll lose your credit history, which can damage your credit scores — especially if it’s an account you’ve had for many years.
When it might not matter
If you barely used the credit card — which is a common reason for receiving a lower limit — maybe it’s no big deal when an issuer lowers your credit limit.
For example, if you have $50,000 in combined credit spread among several cards, losing $1,000 of that credit limit on a single card won’t matter much. Your credit scores might stay relatively the same. And if, say, you’re already solidly into the excellent credit range (FICO scores of 720 or higher), then dropping a few points is unlikely to affect your life. You’ll still get the best loan rates, for example.
Just carry on.
Why an issuer might reduce your credit limit
So why did the credit card company lower your credit limit in the first place? You could ask that when you call. But here are a few possible reasons:
You didn’t use the card enough. Rarely or never using the card could be a reason the issuer reduces your credit limit or closes the account altogether.
You made mistakes with credit. If you’re paying late on a credit account, you might be viewed as a higher risk of default (not paying). Even if you’ve been a perfect customer with the issuer in question, that issuer might still lower your credit limit based on your payment behavior with other credit lenders.
The issuer is reducing credit risk. Sometimes a credit cut has nothing to do with you. The issuer might make a business decision to reduce its risk by lowering the amount of credit it makes available to customers generally.
Identity theft. If someone steals your identity and begins opening new credit accounts and abusing them, that sudden change in behavior could trigger a reduction in credit limit.
How to minimize the chance of a cut
You don’t have control over what a credit card issuer will do with your credit limit, but here are some tips to avoid a lowered one.
Use the card. You’re more likely to see a credit reduction if you don’t use the credit card. (The issuer could also close the account entirely, which is the ultimate credit reduction.) That’s why it’s a good idea to use the card at least occasionally. You could, for example, set it as the autopay method for a recurring monthly bill.
But don’t overuse it. Maxing out a card raises your credit utilization, which might also trigger an issuer to reduce your limit.
Periodically ask for a raise. Over the years, if you receive a higher and higher limit, a reduction won’t hurt as much.
Be a good customer. All the usual things apply: Pay your credit card bill on time, every time — in full is best.
Pay attention to macroeconomics. That’s less nerdy than it sounds. Basically, take note of signs of a U.S. economic recession — when news headlines mention rampant layoffs, lower consumer confidence, higher personal debt and slower home sales, for example. They could be signs that a credit card issuer will put the brakes on credit in general, and maybe yours specifically. Recessions are a good time to be on your best behavior with your credit accounts, if you’re able.
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