Can Your Credit Limit Decrease?

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 time.

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 their risk.

Conversely, not 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.

When lenders 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:

  • Check 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 decrease.