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Can a lower credit limit hurt your credit score?

What to expect when an issuer decreases your limit — or you request a lower limit for yourself.

A low credit limit can hurt your credit score because it affects your credit utilization ratio, which represents the amount of available credit you’re using against the total credit available to you. Here’s what to do if your card issuer limits your credit — and a few situations where it may be to your benefit.

Can my credit issuer lower my credit limit?

Yes, card companies and issuers have the right to lower your credit limit for two main reasons:

  1. Your card has been inactive for a significant time.
  2. You show signs of financial hardship, such as missing payments, carrying a high balance or only sending minimum amounts.

Major economic events also trigger card companies to tighten credit lines, such as the Covid-19 pandemic or the Great Recession in 2008.

Under the Fair Credit Reporting Act, an issuer must give you an “adverse action notice” when it makes changes to your credit account that don’t benefit you. It also can’t impose over-the-limit fees or penalty rates for exceeding your new limit until 45 days after issuing this notice.

What to do if your issuer lowers your limit

Here are some steps you can take if your issuer decreases your credit limit:

  1. Contact your card’s customer support. Ask why your credit limit was decreased and what you can do to restore your previous limit.
  2. Make your case. You may be able to convince the representative that you deserve another chance. Perhaps you’ve been a good customer for several years, and this is your first hiccup.
  3. Take action. The rep should tell you why your credit line was lowered and what you can do to reinstate it. Most often, they’ll ask you to:
    • Pay down balances. Keeping your credit utilization under 30% shows you can manage debt responsibly.
    • Catch up on missed payments. Clear off any payments you may have missed, including fees and extra charges you may have incurred.
    • Keep the card active. If you tend to favor one card, get in the habit of making small regular purchases on your other cards so they stay active.
  4. Don’t close the account. You might be tempted to end your relationship with the company altogether, but closing credit lines lowers the amount of credit available to you, which increases your credit utilization ratio and hurts your credit score.

How a lower limit affects your credit score

A lower credit limit affects your total credit utilization ratio — how much of your total available credit you’re currently using.

Your credit utilization ratio is a top factor in calculating your credit score, counting for as much as 30% of your score. It’s second only to your payment history.

If you’ve charged $300 to your credit card and your total credit limit is $1,000, then you’re using 30% of your credit utilization. But if your limit is lowered to $600 and you’ve charged $300, then you’re using 50% of your credit utilization.

Credit bureaus typically want to see a credit utilization ratio of under 30%. The more credit you’re using, the more it can harm your score. If you or your issuer reduces your credit limit, it can result in a drop in your credit score because of an increased credit utilization ratio.

Are there benefits to lowering my credit limit?

Not usually. When you lower your credit card limit, you’re directly increasing your credit utilization ratio, which can negatively affect your score. Plus, having more credit at your disposal can help cover unexpected expenses.

There are two scenarios where asking for a lower limit may benefit you:

  1. You can’t control your spending. If high credit limits are too tempting, you’re better off asking for a decrease in your credit limit — or just cut up the card — to eliminate any spending outside of your means.
  2. You want a better card from the same issuer. Some credit card companies limit the amount of total credit they’ll extend to any one person, and if one card has more benefits over another, you may want a smaller limit on the less advantageous card.

How to reduce your credit limit in 4 steps

If you’ve maxed out your credit cards in the past or find it hard to stick to a budget, curb the temptation to spend by reducing your credit limit as you pay off your credit card.

  1. Determine your current balance on the account. Lenders will not accept a request to lower your credit limit past the amount you already owe on the card.
  2. Decide how much you want to lower your credit limit. Be sure that you won’t need that card too much in the future. If you cut your limit, requesting a credit increase will result in the lender running a hard credit pull, which could ding your credit score.
  3. Contact the lender. Reach your creditor either on the phone, by email or mail. Once the lender has approved your request and you’ve confirmed that a credit line decrease is what you want, the reduction is reflected on your account immediately.
  4. Opt out of any automatic account review programs. Creditors routinely increase or decrease credit limits as they see fit based on your activity. Contact your lender about opting out of automatic changes.

How to calculate your credit utilization rate

Two numbers make up your credit utilization: your total credit limit and your total current balances. Most experts recommend keeping your credit utilization under 30%.

Your total current balance is the amount you have charged to all cards. Your total credit limit is the maximum credit limit you have on all cards.

Calculate your credit utilization ratio in four steps:

  1. Add up your current balances across all credit cards.
  2. Add up your total credit limits.
  3. Divide your total balance by your total limit.
  4. Multiply that number by 100 to see your credit utilization expressed as a percentage.

Say you have a total balance of $500 and a total limit of $1,000. In this case, your credit utilization is 50%.

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