Have you ever had
your credit card denied only to find out that your credit limit had been
lowered? According to the Fair Credit Reporting Act, the credit card issuer can
lower your limit at any time, and they are not required to notify you ahead of
The most common
reason a credit card issuer will lower your limit is because your spending
behavior is raising red flags. If you're frequently maxing out your credit
cards or carrying huge balances, the issuer may lower your limit to decrease
using a card may also decrease its limit. The company makes money on the card
only if you use it. If you don't use it, they'll decrease your limit and allocate
the available credit to a more active user.
They may also
decrease credit limits during shaky economic periods, as some did during the
height of the COVID pandemic.
reduce credit limits, your total debt utilization ratio — the amount of credit you
are using divided by the total credit available — increases, which causes your
credit score to drop.
If creditors believe
that you're at higher risk of default — that is, when you're close to (or in)
debt trouble — they're more likely to decrease your credit line. Here are some
tips to help you avoid the pitfalls of a decreased credit limit:
accounts online regularly. At the very least, check it monthly,
when you get your statement. It's also wise to look at your account before
making a big ticket purchase.
- Keep a card
or two with low or no balances. That way, if your limit is decreased on
one card, your debt utilization ratio doesn't skyrocket.
- Stay out of
credit card debt trouble. Credit card companies are most likely to
reduce the credit limits of higher-risk customers. Avoid making late
payments or applying for too much credit. Generally, anything that could
drop your credit score could also make you vulnerable to a credit limit