It can be surprising to realize that your credit limit has suddenly been cut. A dip in available credit may or may not be tied to your diligence in paying your credit card balances. Sometimes, it’s an arbitrary decision by your credit card company.
If you are not happy with the decreased limit determined by your credit card issuer, you do have the right to ask that it be increased. If they don’t oblige and return your credit limit to what it was, you can still take action. Read on to understand why you could have your credit card limit reduced and what your options are to restore your available credit.
Why was your credit limit reduced without warning?
If you try to make a charge for a large purchase like a kitchen appliance or a deposit on a cruise and your available credit to make that purchase isn’t there, that could signify your credit card issuer has cut your credit limit.
If you’ve missed credit card payments, or are late in paying them, your credit card issuer could react by cutting your credit limit. In some cases, however, there’s no rhyme or reason why banks cut credit lines. “But at the end of the day, banks are for-profit businesses,” says Monica Eaton, spokesperson for Chargebacks911, a chargeback management service. “They want to invest their resources in businesses and cardholders who’ll provide a positive return. And there are many different risk/reward variables that affect how banks perceive you.”
According to Consumer Financial Protection Bureau (CFPB) data, the majority of decreased credit lines were not linked to recent credit card delinquencies.
➤ SEE MORE:How surging credit card delinquency rates can affect credit limits
More specifically, as Eaton explains, a cardholder’s income and wealth can play a significant role. “Other factors might include your employment history, spending habits, debt as a percentage of your income, any limits or restrictions on other credit cards, and monthly expenditures,” she says.
To that point, she says banks don’t want to curtail their customers’ spending. “Big spenders generate big profits, but to a bank, it’s all a risk/reward calculation, so your credit card issuer may lower your spending limit when they perceive an elevated risk,” she notes. “This includes things like missing your payments — or being habitually late.”
Are credit card issuers required to notify you of credit limit shifts?
Yes, the Fair Credit Reporting Act requires credit card issuers to notify cardholders about credit limit decreases, either by phone or mail. “This should help protect you from getting totally blindsided,” Eaton reassures. But if you attempt to make a large purchase before you’re notified, this could come as a surprise.
How can a lowered credit limit impact your credit score?
Your credit score is calculated based on several factors; one of which is your credit utilization rate. “This refers to how much credit you are using at any given time,” explains Andrea Woroch, a personal finance expert. “Those who carry higher balances will have a high credit utilization rate which will negatively impact your score since this makes you look like a riskier borrower.” When a credit card issuer lowers your credit score, it reduces how much available credit you have and thus could negatively impact your overall credit utilization rate so your score gets a ding, she adds.
If you have multiple accounts and/or don’t utilize much of your credit to begin with, a credit limit reduction likely won’t impact your credit much. As long as you’re using less than 30% of your overall credit, you should be in good shape.
What to do when a credit card company lowers your credit limit
As a cardholder, it’s your right to ask that your credit line be bumped back up. Here are some steps to try:
- Reach out to your credit card company and try to negotiate a credit limit increase.
- Send a request online via email or through your credit card portal requesting your credit line be reinstated.
- Consider opening a new credit card as you can gain more credit through a new line of credit. “Just make sure you are paying attention to how much you’re spending when using multiple accounts as it’s easy to lose track this way, which can dig you into debt,” cautions Woroch. Also, when opening a new credit card, be sure you’re getting a robust rewards program and good sign-up bonus, she adds.
How can you restore your card limit?
In addition to the tips mentioned above, you can try to restore your credit limit by managing your credit card account properly. “This means, making on time payments, paying more than the minimum due, using the card regularly such as setting up monthly bill payments for Netflix or another recurring expense,” says Woroch.
➤ SEE MORE:Is an automatic credit limit increase a good thing?
