There’s nothing more annoying than your credit limit being decreased, especially when you’re working to repair your credit. Since credit utilization plays a large role in your credit score, when your limits are suddenly reduced, you usually see an instant impact. I’m sharing 5 reasons why your credit limit was decreased, and how you can move forward accordingly.
Before I dive into common reasons why credit limits are cut by lenders, I want you to understand your rights as a borrower, and creditor rights as a lender. “Generally speaking, lenders can increase your limit and decrease your limit without notice,” said Ruth Jackson Lee, a consumer attorney based in Florida. “They don’t have to provide any explanation.”
According to creditcards.com, “the Fair Credit Reporting Act (FCRA) requires an issuer to send a consumer an adverse action notice for any action it takes based on information contained in a credit report.” One thing to note is that your credit limit may not have been decreased based on anything found in your credit report. It could simply be your spending behavior with the credit line.
It may be rare, but if your creditor cuts your limit to the point where you are maxed out, you have certain protection. “Under the law, your issuer is prohibited from charging an over-the-limit fee within 45 days of the credit limit decrease if it leaves your balance higher than the new limit.”
5 Reasons Why Your Credit Limit was Decreased
Now that you know that your credit limit can be decreased at any time, and without notice to you, let’s talk about the common reasons why your credit limit was decreased.
You have racked up balances on this credit card or others
Banks and other credit issuers have advanced technology to identify spending patterns, with their particular credit line, and across consumer trends. Because of this, if they notice unusual spending behavior, they may cut your credit limit to protect themselves.
If you have charged large balances in a short amount of time, on one card or across many cards, your lender may cut your credit limit. If a creditor cuts your limit, it’s likely that they don’t think you’re creditworthy enough to pay back the limit you previously had.
Your credit score has gone down
Often times, when your credit score goes down, there are a few factors involved. You’ve paid a debt late. You’ve racked up more than 30% of your available credit limit. You’ve opened one or many new forms of credit lines. If any of these things happen, your current lenders may lower your credit limit as a result. Remember, your creditor is looking out for themselves. If they don’t see you as reliable to pay back the limit they are offering you, they can lower it.
You have spent over your credit limit
Giving your lender any reason to show that you aren’t credit worthy, like spending over your credit limit, is all they need to cut your credit line. If you are spending over the limit available to you on your credit card or other debt, it is a sign that you aren’t properly managing your credit.
You haven’t used the credit line in a long time
This particular instance happened to me. When I finally got to a place where I paid off all of my credit cards, I stopped using them. I had a store credit card with a $1000 limit. After a few years of not using the card, my limit was reduced to $200.
If you have long period of inactivity with a particular credit card, the lender my lower your limit. It doesn’t mean you’ve done anything wrong; it just means that they aren’t able to see your spending patterns with their particular credit line and want to protect themselves from an instant rack up.
You have suspicious activity on your account
Whether the suspicious activity is on your part or due to fraud, your lenders may reduce your credit limit to protect themselves and you! Any inkling of fraud may prompt your lender to take action. Sometimes, suspicious activity could come from your credit report. In this instance, your lender must send you a notice as to why they took action.
Other times, suspicious activities may come in the form irregular or erratic spending behaviors. Make sure you are managing your credit lines properly, to ensure your credit limits aren’t lowered because of your spending behavior.
What to Do if Your Credit Limit was Decreased
If your limit was decreased due to too much debt…
In the instance your credit limit was decreased because you have too much debt, you’ll want to start focusing on debt repayment efforts. Avoid using credit cards at all costs. Continuously increasing your balances could make things worse. Start focusing on tackling your debt and getting to a place where it can be managed appropriately.
If your limit was decreased due to no activity…
When your credit limit is decreased due to no activity, consider a strategy for the credit lines that aren’t ever used. Make one purchase a year on those credit accounts. Make sure you have reminders set to pay them off, as you are likely not in the habit of checking on those particular accounts. You can avoid account closure and credit limit decreases as a result of no activity by simply having activity!
Related: 5 Tips for Increasing Credit Limits
When it comes to your creditworthiness, you don’t want to mess around! Your credit can help you get a house one day! If your credit limit was decreased, don’t panic. Take it as a sign that you need to do something about your current credit management. Have you had your credit limits decreased at one point in time? What caused it? Share your experiences by leaving a comment below.