Why Did the Bank Lower My Credit Limit?

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Reading a statement from your credit card company and finding out that your credit limit has been lowered is not a fun experience. The decision could be due to a number of factors, some within your control and some not. Before you panic or cut up your card in anger, find out if there's anything you can do about the lower limit.

Changes in Your Spending

Credit companies are stingy with credit lines because the past recession resulted in many people defaulting on their credit altogether or declaring bankruptcy. Because of that, banks and credit companies tend to keep a very close eye on their customers' habits. If, for example, you've always shopped at high-end clothing stores and recently cut back on your spending, preferring to shop at dollar stores instead, the bank might consider you a greater financial risk and lower your credit score for that alone.

Changes in Your Credit

If your credit has recently changed, the bank might respond by lowering your credit limit. This means that if a credit agency has dinged your credit score because you were late on your utilities payment, this could lead to the bank lowering your credit limit. It doesn't matter if the two are unrelated. Another example is if you take advantage of a credit transfer offer where you can transfer part of your credit balance onto a new card with zero percent interest. Transferring part of your credit balance can send a signal to the bank that you're a financial risk, and the bank might lower your credit limit in response.

What Not to Do

Even if you're mad at the bank for lowering your credit limit, now is not the time to get back at the bank by closing your credit account. That action will only end up hurting you more. When the bank lowered your credit limit, your debt-to-limit ratio increased. The debt-to-limit ratio is the percentage of your credit card limit that's taken up by the balance on your card. The higher the percentage, the worse of an effect it will have on your credit score. Try to pay off your balance as quickly as you can, but even when you do, don't immediately close your account. If you've had the credit card for a while, the long amount of credit history will help your score and shutting the account will hurt it.

How to Respond

Call your bank and ask if you can have your previous limit reinstated. Sometimes banks lower credit limits via computer programs and don't have a representative looking at your account personally. A phone call might fix things. If it doesn't, get a free copy of your credit report to make sure new information wasn't added to your report that made you look like a financial risk. Check to make sure that automatic payments on your card won't put you over the new limit, and start paying off your card right away.