What to Do When Your Credit Limit Is Reduced

Card issuers can lower your credit limit at any time, often without advance notice. The main risks are a declined card at a bad moment and a jump in your credit utilization, which can lower your score even though you haven’t borrowed another dollar. Confirm the new limit, find out why it happened, and adjust before your next statement closes.

Confirm the numbers

Check your app or call the issuer to see:

• the new limit
• your current balance, including pending charges
• how much available credit is left

If the new limit is at or below your balance, ask whether you’ll be charged an over-limit fee or have the card restricted. Issuers have to give you 45 days’ notice before charging a fee or penalty because you went over a newly lowered limit, but they don’t need to warn you before lowering it.

Move recurring charges (streaming, utilities, insurance) to another card if available credit is now tight, so those bills don’t fail.

Ask why

A lower limit is an unfavorable change to your account, so you’re generally entitled to know the reason. You may get it in a letter; if not, ask. Common reasons include:

• not using the card for a long time
• missed or late payments on this card or on others
• higher balances across your other accounts
• a lower credit score
• the issuer tightening its lending standards for everyone

If the reason points to something on your credit report, pull your reports and check them. If something there is wrong, dispute it; How to Dispute a Credit Report Error explains how. If the information is accurate, it’s not an error, even if you disagree with the issuer’s decision.

Watch your utilization

Utilization is your card balances divided by your limits. If you owe $1,500 on a card whose limit drops from $6,000 to $3,000, that card goes from 25% utilization to 50% overnight. Since amounts owed make up about 30% of a FICO score, that can move your score when the new limit is reported.

If you can, pay the balance down before the next statement closing date, which is usually when the balance gets reported. This matters most if you’re about to apply for a mortgage, car loan, or apartment. Don’t skip rent or essentials to do it, though; a short-term score dip recovers. Understanding Credit Score explains how utilization fits with the other factors.

Should you ask for it back?

You can ask for reconsideration, especially if your income has gone up or the reason was inactivity. Before you do, ask whether a request will trigger a hard inquiry, which can cost a few points. The issuer may say no, and that’s its decision to make.

Another option is to keep using the card lightly, paying it in full each month, and request an increase again in six months or so, once you’ve shown activity and on-time payments.

What not to do

• Don’t open several new cards at once to make up for the lost credit. Multiple applications add hard inquiries and new accounts.
• Don’t close the card in frustration. You’d lose all of its available credit, not just the part that was cut. What Happens to Your Credit Score When You Close a Card? explains why.
• Don’t assume a lower limit means you have to pay off the balance immediately. Your normal minimum payment still applies.

Sources

• CFPB: Can my credit card issuer reduce my credit limit?
• OCC HelpWithMyBank: How must the bank notify me when they change my credit card terms?
• Experian: What to do if your credit limit decreases
• myFICO: What’s in your credit score

This article is for educational purposes and is not financial advice.