3 Things to Do if Your Credit Limit Is Lowered
It may be shocking to find that
your lender has reduced your credit card limit, especially if it
happens without warning. Your bank can technically change your line of
credit anytime it wants to, bringing your balance dangerously close
to the new limit. If this happens to you, there
are options for coping with a reduced credit limit.
1. Contact your lender
Ask your bank why your
credit limit was reduced. Have any particular behaviors led them to think
you’re going to become a
credit
risk
? Are they suspicious of unusual spending patterns? Also, make a case
for yourself: Tell your lender about your sterling record of on-time payments
or a recent salary increase, for example. If you did happen to fall behind on
payments but have a good reason for it (like a medical emergency or temporary
layoff), let your bank know about that as well. If the account representative
isn’t able to help, kindly ask to speak to a supervisor.
2. Pay down your balance
As a rule of thumb, you shouldn’t
carry a balance higher than 30% of your overall credit limit. The more you
owe compared with your total available credit, the higher your
credit utilization
ratio
— and the more likely your credit score will take a hit.
If your slashed credit limit puts
your balance above that 30% threshold, you should make an effort to pay down
your outstanding balance, especially if you’re planning to apply for a new
loan in the near future. Improving your credit score makes you more likely to
qualify and get lower interest rates.
3. Consider transferring your balance
If the credit limit cut will put
you above your limit, you should consider transferring your balance to another
card. A
0%
balance transfer card
might be a good idea, since you could save money on
interest payments. On the other hand, if you just want to shift part of your
balance to stay under the limit, consider a
no
balance transfer fee card
.
One thing you shouldn’t do
in response to a credit limit reduction: cancel the card. Even with a reduced
limit, the card is still contributing to your credit score. Keeping more
accounts open, having a longer average account history and maintaining a larger
overall credit limit all work to boost your FICO score.
This article originally appeared
on NerdWallet
