If your credit card company recently lowered your credit limit, rest assured you are not alone. Credit card companies have been routinely decreasing credit limits over the last few years. While they target “riskier” borrowers, some consumers with good credit scores who pay their bills on time are seeing their limits cut as well.
The main reason credit card companies are slashing limits is to balance out the larger number of consumers who are defaulting on their payments. The companies profile their borrowers and watch the borrowers’ spending with an eagle’s eye. Though you can’t necessarily prevent your credit from being lowered, consistently paying on time and keeping your balance below 30% of your available credit is the best way to prevent this from happening to you.
If the bank or lender has already lowered your credit limit, here are a few things you can do:
- Call and request for them to change it back. Though the likelihood of them doing so may be low, it never hurts to ask. Be sure to inform them about anything that puts your financial situation in a positive light, such as a high credit score, a history of always paying on time, an increase in your salary, or how much you have in savings. You want to show them that you are at a low risk of defaulting.
- Even if they won’t raise your limit to the original amount, perhaps they will waive your annual fee or give you a lower interest rate.
- Look around for other lenders. You may be able to find another bank or credit card company you can transfer the balance to. You may be happily surprised, and even find a card with a lower interest rate or higher credit line than you previously had!
- Try to get back to a solid debt-to-limit ratio. When your credit limit is lowered, this can put you in a poor position as your balance may suddenly seem much higher compared to your available credit.
- For example, if you owed $500 on a $5,000 card, you had an ideal balance-to-limit ratio of 10%. But, if the credit card company suddenly cuts your limit to $1,000, all of a sudden your ratio is at 50%. If the credit card company slashes your limit even further, you might look like your cards are maxed out.
- So, focus on paying off the necessary debt as quickly as you can to get back to a good limit.
- Pull your credit report. Perhaps your lender lowered your credit line for reasons of their own, but they may have done so because of a change in your report you’re not even aware of. Make sure there is nothing on your report that you can dispute or have removed. Knowing your credit score also lets you know where you stand if you intend to apply for a new credit card to replace that credit you lost.
- Keep the credit card open. You may be tempted to close the card to “get back” at the company, but doing so will only hurt you and your credit. The best revenge is to pay off that debt, keep the card open and switch to another lender. That way, the line of credit you have with this company works in your favor.
- Make sure any automatic payments reflect your new credit line. Your monthly payment may change along with your limit, and could possibly increase with a lower credit limit. Be sure you don’t incur any fees or penalties from not paying your new minimum amount.
Unfortunately, the credit card companies can change the terms of your credit at will and don’t even have to let you know unless they decrease it below your current balance. With a little knowledge on your side, however, you can take back your power as a consumer if this should happen to you.
This article has been reviewed and approved by Thomas A. Moore, managing attorney Brownstone Law Group, PC. California Bar # 148698. This article is for informational purposes only, does not provide legal advice of any kind or form any type of attorney/client relationship.
The services of Brownstone Law Group, PC.and its affiliates may not be available in all states.
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