Why Credit Card Issuer Lowers Your Credit Limit

Triston Martin

Nov 23, 2022

If you last used your credit card a while ago or your spending habits seem dangerous, the company may reduce your available credit. When the economy is shaky, or adjustments must be made to their overall credit portfolios, they may also choose to reduce available credit.

You may be concerned about the impact of a limit reduction on your credit and finances. Your credit score may drop after a credit line cut, but you can take measures to increase it. When consumers make late payments, credit card companies often reduce their limit.

Financial institutions routinely reduce loan limits as a risk management strategy. Listed below are some of the most frequent reasons why credit limits are lowered:

This Account Is Rarely Or Never Used

Both transaction fees and interest on outstanding amounts are major revenue streams for credit card issuers. If you don't use your credit card and don't have a balance, your credit limit may be lowered so that the card issuer can lend the available funds to another client.

You've Reached Your Limit or Are Already Overextended. However, the card issuer may get suspicious if you constantly spend up to your credit limit, miss payments, or change your purchasing habits. A card issuer may reconsider your credit line due to risk if your credit score has dropped recently or if you utilise a lot of your available credit.

They have to make some changes to their loan portfolio

Card issuers may readjust credit limits in response to new regulations or to reflect the companies' shifting objectives. Credit card companies, for instance, may reduce credit limits to comply with risk standards or increase profits generally.

Financial markets are in disarray. The way credit card firms see credit risk might change as a result of significant economic shifts. Some credit card firms, for instance, reduced available credit in response to the economic instability and disruption brought on by the COVID-19 pandemic in 2020 and 2021. The Great Recession of 2008 witnessed a similar pattern.

What Happens to Your Credit Score When Your Credit Limit Is Reduced?

Reduced access to credit can have an impact on your credit usage percentage if you hold a balance. In what way does one make use of available credit? Let's pretend you're $2,500 in debt on a card that allows for a total of $10,000 in purchases. Your credit utilisation ratio on that card is 25%, which is generally regarded to be low enough to avoid serious credit score impact. A low credit usage ratio is one of the essential variables in determining your credit score.

Imagine that the credit card company lowered your limit to $5,000. If you maintain the current balance, your credit usage will increase to 50%. Your new utilisation ratio of 50% is deemed high and may damage your credit score, as experts recommend maintaining your credit use at around 30%. With a large revolving balance, you put yourself in danger as well. Even while your usage ratio won't alter if your balance is zero, your ability to carry a balance in the future may be constrained. Even if you're unsuccessful in changing their minds, they may suggest strategies for increasing your credit limit in the future.

If you're short on funds, apply for a new credit card or personal loan. You should apply for a new credit card or take out a personal loan to replace your lost credit line if you depend on it. Using your credit score as a filter, Experian CreditMatchTM can present suitable opportunities.

Inquire about raising the limits on your other credit cards

Inquire about raising the limits on your other credit cards. Keeping your credit options open may necessitate requesting an increase in the credit limit on an existing card. Put money toward debt. The negative effect on your credit usage ratio can be mitigated by reducing your revolving balances if you have the financial means to do so.

Keep on and think about the future. Don't require access to funds at this time. You may wait it out for now. If your service was terminated for lack of use, try making more frequent purchases with your credit card. That is so only financed significant items to preserve your credit line. Making a few small purchases over a few months and paying them off in full right away may be enough to demonstrate regular card use to the card issuer.