What to do if a credit card issuer lowers your credit limit
IIf the credit card issuer lowers your credit limit, you won’t be able to charge that much on the card, and you may see your credit rating go down. This has happened to many cardholders in 2020 amid the economic uncertainty of the COVID-19 pandemic, for example.
A lower credit limit can be bad, depending on how much credit you have. 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 reset your old credit limit.
Just understand the context:
- When it comes to giving credit, you don’t hold the power in the relationship. The bank does.
- Try not to take the credit reduction personally. It’s a business, not a reflection of your worth as a person.
- There are many other credit card issuers.
How to appeal a credit reduction
You may not receive a notification that your credit card issuer intends to reduce your credit limit. But when you find out, here are some tips for restoring your old credit limit:
- Create a plan. Before asking the issuer to reset your credit limit, think about a few reasons why they should do so. If you were the bank, what would persuade you? For example, you might have been a customer for five years and have never missed a payment.
- Call. Generally, you might get more favorable results if you talk to a human. This means calling 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 available to the human representative of the card issuer. Stay calm and cordial as you explain the reasons why your credit limit should be reset. Again, this is a business discussion.
Calling to appeal mainly falls under the “it doesn’t hurt to ask” category. However, if the issuer does a credit report as part of their assessment process, it could harm your credit, at least temporarily.
Why your credit scores might go down
If your appeal fails, you could see your credit scores drop due to a factor called the credit utilization ratio. Credit scoring models usually penalize you if you use up a large portion of your available credit, both overall and by card. So your scores may drop just as you approach your credit limit, which you are more likely to do when that limit is lowered.
In general, it is wise to keep your balances below 30% of your available credit.
How to protect your credit
You could minimize the ripple effects on your credit utilization rate. Some ideas :
- Open another credit card account. It’s an easy way to increase your availability of credit. Your credit scores may take a temporary hit of a few points for opening a new account, but in the longer term, more credit will help your scores.
- Ask for increases from other credit accounts. You may be able to offset the reduction in credit on one card account by requesting and receiving increases to your limit on other existing credit accounts.
- Pay the balance. Reduce spending on the card with the lowered limit and pay off the balance, or at least part of it. In addition to eliminating debt, paying off a card balance gives you more headroom over your new lower limit.
- Don’t get angry and close the account. Closing the account not only means that you will lose the entire line of credit, but you will also lose your credit history, which can damage your credit scores, especially if it is an account that you have had for decades. many years.
When it might not matter
If you’ve barely used the credit card – which is a common reason for receiving a lower credit limit – it might not be a big deal when an issuer lowers your credit limit.
For example, if you have a combined $ 50,000 credit spread across multiple cards, losing $ 1,000 of that credit limit on a single card won’t matter much. Your credit scores can stay relatively the same. And if, say, you’re already solidly in the excellent credit range (FICO scores of 720 or higher), losing a few points is unlikely to affect your life. For example, you will always have the best loan rates.
Just keep going.
Why an issuer might lower your credit limit
So why did the credit card company lower your credit limit in the first place? You can ask for this when you call. But here are some possible reasons:
- You haven’t used the card enough. Infrequent or never use of the card may be a reason the issuer lowers your credit limit or closes the account altogether.
- You made mistakes with credit. If you pay late on a credit account, you might be considered to have a higher risk of default (don’t pay). Even if you have been a perfect customer with the issuer in question, that issuer might still lower your credit limit based on your payment behavior with other lenders.
- The issuer reduces the credit risk. Sometimes a credit cut has nothing to do with you. The issuer can make the business decision to reduce its risk by reducing the amount of credit it typically makes available to customers.
- Identity theft. If someone steals your identity and starts opening and abusing new credit accounts, that sudden change in behavior could trigger a reduction in your credit limit.
How to minimize the risk of cuts
You have no control over what a credit card issuer will do with your credit limit, but here are some tips to avoid a drop.
- Use the map. You are more likely to see a reduction in credit if you do not use the credit card. (The issuer can also close the account entirely, which is the ultimate credit reduction.) This is why it makes sense to use the card at least occasionally. You can, for example, set it as an automatic payment method for a recurring monthly invoice.
- But don’t overdo it. Maximizing a card increases your credit usage, which can also cause an issuer to lower your limit.
- Periodically request a raise. Over the years, if you get 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 better.
- Watch out for macroeconomics. It’s less cheesy than it looks. Basically, take note of the signs of an economic recession in the United States – when the headlines mention widespread layoffs, declining consumer confidence, higher personal debt, and slowing home sales, for example. They could indicate that a credit card issuer will hold back credit in general, and maybe yours in particular. Recessions are a good time to be on your best behavior with your credit accounts, if you can.
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Gregory Karp writes for NerdWallet. Email: [email protected] Twitter: @spendingsmart.
The article What to do if a credit card issuer lowers your credit limit originally appeared on NerdWallet.
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