Can a credit card company lower my credit limit?

Your credit card issuer can lower your credit limit at any time, regardless of how you manage your account. Issuers can lower credit limits to minimize risk in an uncertain economy, as many cardholders experienced during the COVID-19 pandemic in 2020. Or they can do so when cardholders regularly use this. that issuers consider too much or too little of their available credit. .

Credit card companies determine your credit limit by evaluating several factors, such as your credit score, your income, the available credit you already have, and the amount of existing credit you are using. Ultimately, however, they can increase or decrease the limits whenever they want.

” MORE: 3 things to do if your credit limit is low

When can a credit card issuer lower my credit limit?

While credit card issuers can lower your limit at any time, they’re more likely to do so when:

• You are using too much of your available credit: When a cardholder regularly exceeds their credit limit or has high balances, credit card issuers may view it as a sign of financial trouble. As a result, they can lower your credit limit in the future to minimize their own risk. This is especially true if you start paying late or missing payments.
• When the card is inactive or seldom used: The company that issued your credit card only makes money if you use the card. (This money comes from transaction fees and, if you keep a balance, interest.) If you use it infrequently, the issuer may be inclined to lower your limit and, indeed, allocate that available credit to someone. else who is more likely to generate income. for the sender. If you let your card sit too long without using it at all, your issuer could shut down your credit card entirely, leaving you with a potentially damaged credit score and no card to use.
• When the economy is uncertain: Credit card issuers have been known to reduce credit limits to minimize their risk when the economy is uncertain. Most issuers cut credit limits during the Great Recession, according to a Federal Reserve survey. They also did so in response to the COVID-19 economy.

Can credit card companies lower your credit limit without notice?

Credit card companies are not required to notify you when a credit limit is lowered unless it results in an over-limit charge, which is unlikely because many issuers do not. ‘assess these costs more. In most cases, credit card companies are required to notify you 45 days in advance of any changes to your account terms and conditions, but this is an exception.

Although credit card issuers are not required to notify you of a decrease in your credit limit, it is common for them to do so. If you receive such a notice, it may include a reason why the issuer has lowered your credit limit. You might even be able to ask to keep your current credit limit, depending on why you are lowering it.

Can I avoid the reduction in my credit limit?

You may be able to avoid a reduction in your credit limit, but this will likely depend on your issuer and your credit management history. The best attempt to avoid one is to contact your issuer as soon as you learn that your credit limit is changing. You have nothing to lose by asking the company to consider retaining your previous credit limit.

If you’re about to max out your credit card, or if you’re using up a lot of your available credit, it may be more difficult to persuade your issuer to leave your credit limit alone. Cardholders whose limits have been reduced due to inactivity may have better luck.

Act quickly to contact your credit card issuer as soon as you receive a notice, if applicable. If you wait too long, you may need to have a credit check to get your credit limit increased, and there is no certainty that you will get your previous amount back.

Will a reduced credit limit affect my credit score?

A lower credit limit can affect your credit score if it significantly changes your credit utilization rate, the percentage of your available credit that you use. Usage is a key factor in your credit score. As a general rule, use less than 30% of your available credit.

Even if a reduced limit pushes you above that percentage, the effect doesn’t have to be permanent. Stay on track with payments and reduce your debt, and your credit can get better.

More from NerdWallet

The article Can a credit card company lower my credit limit? originally appeared on NerdWallet.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.