What to do if your line of credit goes down and why it’s happening

  • There are many reasons why a credit card issuer might decide to lower your credit limit, from a change in your spending habits to missed payments.
  • You should never charge near your spending limit on your cards; ideally, you will keep your utilization rate below 30%. But having a higher credit limit is an important factor in improving your credit score.
  • Credit utilization accounts for 30% of your credit score, so the higher your credit limits are on your accounts, the better your utilization rate will be (assuming you keep your balances low).
  • If your line of credit is running low, call your issuer to ask why and see what you can do to get it back up. They may be willing to accommodate you after you’ve paid off a balance or fixed a problem like an error on your credit report.
  • Check out Business Insider’s list of the best credit cards.

You are traveling with your favorite credit card when you receive a notification that your credit limit has been lowered. Say what?

The above scenario happened to a friend of mine who enjoyed using his credit card, made regular payments, didn’t go over the limit, or was late with a payment. His credit score dropped 30 points.

So why would a creditor suddenly lower your limit? Here’s what we found and what you can do about it.

Creditors can reduce your spending limit

Just as creditors can reward you for your excellent payment history and loyalty with a big random credit boost, they can punish you by lowering your spending limit. The reasons can vary, but most are based on the creditor suddenly viewing you as an increased credit risk – or a high risk of defaulting on the card.

Banks may even collectively reduce limits for multiple cardholders to reduce their risk exposure in the event of an economic downturn or uncertainty, although this is rare.

Read more: The best credit cards if you have a limited credit history

Reasons why your credit limit may be lowered

  • Your spending habits have changed. If you haven’t used your credit card for a while and all of a sudden you start charging a lot, or if you’ve always paid the balance in full and now have a balance, these changing habits may be an alarm signal. which results in a lower line of credit.
  • Your credit score has dropped. If you’ve had a drop in your credit score for any reason — too much debt, too many difficult requests, or closed accounts — a credit card issuer might consider that a reason to lower your limit.
  • You have stopped using the card. Creditors want you to use their card, and after a period of inactivity they can lower your limit.
  • Someone stole your identity. If someone has opened other cards in your name or is spending under your stolen identity, you look like a risky borrower.
  • There is an error in your credit file. An error such as a missed payment or collection debt appeared on your credit report without your knowledge. The answer is a lower limit.
  • You are behind on other payments. You cannot keep a single card in good standing; all your creditors need to be paid on time because creditors can see your other accounts and how you manage them. If they see something they don’t like — late or missed payments, for example — they can lower your limit.
  • You missed a payment with this creditor. This change may cause a creditor to lower your limit, thinking that you are going through financial difficulties and that you present an increased credit risk.
  • You have exceeded the 30% usage rate for this card. Creditors prefer that you keep your balance below a 30% utilization rate for each credit card balance you maintain. Likewise, your credit score will be higher when you maintain balances below 30% of available credit. If your card exceeds that 30% usage, the change may prompt them to lower your limit to avoid an even higher usage rate.

What can you do if your line of credit decreases?

While it seems unfair that a creditor could lower your limit and possibly your credit score (check to be sure), you can try to have your card issuer reconsider certain things. The Fair Credit Reporting Act requires a lender to notify you if the lowered limit is the result of information based on your credit report. Check your report semi-annually to help uncover errors and report them immediately.

Additionally, there are provisions that protect you from overlimit fees if your card reaches its maximum within 45 days of the lowered limit.

Restoring your credit limit

Call the creditor and ask for an explanation of why your limit was lowered. If the reason is that your credit score has dropped, you are behind on other payments, or you missed one of your creditor payments, explain the situation and your plan to get back on track. Ask them what you can do to reset your limit. You may need to repay a certain amount, or be six months out of arrears, for them to consider increasing your limit again.

If the reason turns out to be an error or a stolen identity, you should contact all three credit bureaus – Experian, TransUnion and Equifax – and report and dispute the error in writing. You will then need to dispute the error with your creditor and let them know that as soon as your report is corrected, you will contact them so they can look again and hopefully reinstate your previous limit.

If the reason is that your spending habits have changed or the card is inactive, you may need to explain what’s going on — you used the card for a medical or dental emergency, for example — and what your plan is. to pay off the balance, or assure them that you will use the card again.

Finally, if the reason your limit was lowered is because you went over your 30% utilization rate, the creditor may ask you to go back below it by making a large payment by a certain date. If that’s not possible, see if you can make a plan to pay off a certain amount in three or six months, and ask if they’ll consider reinstating your limit once that’s over. This turned out to be the reason for my friend’s lower limit, and his creditor offered him a deal to collect the balance below the 30% utilization rate.

Keep your limits high

Although it’s not that common for a creditor to lower your limit, you can usually try to defend yourself by contacting them, explaining the situation and/or correcting it. If your creditor refuses to work with you, you can file a complaint with the Consumer Financial Protection Bureau.

The best way to avoid a lowered limit is to pay balances in full each month, stay below your 30% usage rate, and use your card occasionally to keep it active. Monitor your credit report regularly and keep your credit score high.

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