Can a credit card company reduce my credit limit?

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Your credit card issuer may reduce your credit limit at any time, regardless of how you manage your account. Issuers could reduce credit limits to minimize risk in an uncertain economy, as many cardholders experienced during the Covid-19 pandemic in 2020. Or they may do so when cardholders regularly use what issuers consider to be too much or too little of their available credit.

Credit card companies determine your credit limit by evaluating several factors, such as your credit score, your income, the available credit you already have, and how much of that existing credit you are using. Ultimately, however, they can raise or lower the limits whenever they want.

When can a credit card issuer reduce my credit limit?

Although credit card issuers may lower your limit at any time, they are more likely to do so when:

  • You’re using too much of your available credit: When a cardholder regularly goes over their credit limit or has high balances, credit card issuers may see this as a sign of financial difficulty. As a result, they may reduce your credit limit in the future to minimize their own risk. This is especially true if you start paying late or missing payments.
  • When the card is inactive or rarely used: The company that issued your credit card earns money only if you use the card. (That money comes from transaction fees and, if you have a balance, interest.) If you use it infrequently, the issuer may be inclined to reduce your limit and, in effect, allocate that available credit to someone else. another that is more likely to generate income. for the transmitter. If you let your card sit too long without using it at all, your the issuer can close your credit card entirely, leaving you with a potentially damaged credit score and no card to use.
  • When the economy is uncertain: Credit card issuers have been known to lower credit limits to minimize their risk when the economy is uncertain. Most issuers cut their credit limits during the Great Recession, according to a Federal Reserve survey. They also did this in response to the COVID-19 economy.

Can credit card companies reduce your credit limit without notice?

Credit card companies are not required to notify you of a lowering of a credit limit unless it would result in an overlimit fee, which is unlikely since many issuers don’t. further assess these costs. In most cases, credit card companies are required to notify you 45 days in advance of any changes to your account terms and conditions, but this is an exception.

Although credit card issuers are not obligated to notify you of a lower credit limit, it is common for them to do so. If you receive such a notice, it may include a reason why the issuer reduced your credit limit. You might even ask to keep your current credit limit, depending on why you’re lowering it.

Can I avoid the credit limit reduction?

You may be able to avoid a credit limit reduction, but that will likely depend on your issuer and your credit management history. The best attempt to avoid one is to contact your issuer as soon as you learn that your credit limit changes. You have nothing to lose by asking the company to consider keeping your previous credit limit.

If you’re about to max out your credit card or you’re using a lot of your available credit, it may be more difficult to persuade your issuer not to touch your credit limit. Cardholders whose limits have been reduced due to inactivity may have better luck.

Act quickly to contact your credit card issuer as soon as you receive a notice, if applicable. If you wait too long, you may need to undergo a credit check to get a credit limit increase, and there’s no certainty you’ll get your previous amount back.

Will a reduced credit limit affect my credit score?

A lower credit limit can affect your credit score if it significantly changes your credit utilization rate, the percentage of your available credit that you are using. Usage is a key factor in your credit score. A rule of thumb is to use less than 30% of your available credit.

Even if a reduced limit pushes you beyond this percentage, the effect doesn’t have to be permanent. Stay on track with your payments and reduce your debt, and your credit can recover.

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Melissa Lambarena is a writer at NerdWallet. Email: mlambarena@nerdwallet.com. Twitter: @LissaLambarena.

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