Things to do if your credit limit decreases
Quick insights
- Credit card issuers might decrease credit limits based on different aspects of a customer’s account activity.
- The reasons for credit limit decreases can vary, so it's important to understand why they could happen.
- There are positive ways you can manage your credit in response to a credit limit decrease.
Being concerned is understandable if your card’s credit limit decreases unexpectedly. As the amount you can spend on your credit card, managing your limit is an important part of managing your account. In this article, we’ll explain why credit limits could decrease and offer some tips for how to proceed.
Understanding why your credit limit decreased
More often than not, people don’t ask for a card’s credit limit to be lowered. This request is allowed, but a credit limit is usually reduced after the issuer conducts a regular account review. This can happen periodically and doesn’t have to be prompted by certain activity.
Your credit card issuer will notify you in writing why your credit limit is being decreased. This notice typically includes reasons that help you understand what led to the change.
Common reasons
Your credit card activity is one of the most common triggers for a credit limit decrease. This activity could involve your credit card spending, such as maxing out your credit limit too many times. Payment patterns are also an important part of account activity. Missing payments or submitting them late on a regular basis could cause your issuer to reduce your credit limit.
Other possibilities
Other situations that could cause a credit limit to decrease are economic downturns and changes to a bank’s policies. Both cause decreases because banks manage the risks of extending credit differently in different situations. In these cases, a credit limit decrease is caused by a change at the bank that has little to do with you.
What to do after a credit limit has decreased
After understanding why your credit limit decreased, you can take certain steps to manage your credit effectively.
Manage your credit utilization ratio
Your credit utilization ratio, which is expressed as a percentage, measures the amount of your credit limit that is being used. This ratio is an important factor when calculating your credit score. When the credit limit of one of your credit card’s is lowered, your credit utilization ratio may increase if you spend the same amount that you did with a higher limit.
Consider avoiding new credit applications
After one credit card’s limit goes down, you might consider applying for a new one to regain some purchasing power. A credit application normally requires a hard inquiry, also known as a credit check, which will temporary negatively impact your score.
As we explained above, your credit score might already be affected by a change to your credit utilization ratio. This can make the period following a limit decrease a bad time for a hard inquiry.
Check your credit report
Errors happen, but you may not be aware of any if you don’t check your credit report regularly. When negative marks show up on your credit report, a card issuer could see it and decrease your credit limit. However, negative marks can sometimes appear by mistake. You have the right to dispute inaccuracies on your credit report.
With Chase Credit Journey®, you can check your credit score for free and review your Experian™ credit report any time, without impacting your score. This is a free tool you can use even if you don’t have a Chase account. One way to be proactive about your credit health is to check your score regularly, for example. Plus, you can get notified if suspicious or unusual activity is found with free credit and identity monitoring.
Tips to help avoid credit limit decreases
Generally speaking, credit limit decreases cannot always be prevented. Managing credit responsibly and maintaining a good credit score can help to avoid this type of account adjustment.
Pay credit cards and loans on time
Your payment history is an important factor in calculating your credit score. When that history is positive, your score could increase over time. You may achieve a positive payment history by paying at least the minimum amount due on your credit lines. Paying your full balance every month can have a stronger positive effect on your credit.
Keep credit utilization low when possible
A low credit utilization ratio typically means using less than 30% of the available credit across open accounts. This ratio is one of the factors used in calculating your credit score. You could maintain a low ratio by paying your card’s balance every month. Maintaining low credit utilization can be an important factor in your credit health.
Report positive changes to your income
The income information your card issuer has on file for your account can be a factor in decisions to increase or decrease your credit limit. This is because income may indicate someone’s ability to repay the debt of an open line of credit. When your income increases, you might want to report the change to your card issuer, as this information helps represent your finances more accurately.
In conclusion
The reason why your credit limit decreases will be provided by your card issuer. It’s understandable that a lowered limit causes some concern. However, the things you can do when a credit limit is decreased may put you in a good position for a limit increase in the future.
Sound strategies include keeping your credit utilization low, paying your bill each month and reporting positive changes to your income. After a card’s limit is reduced, you can still follow those practices and may even continue to build your credit.
