Why do credit cards decrease your limit

Your credit card issuer can lower your credit limit at any time, regardless of how well you manage your account. Issuers might cut credit limits to minimize risk in an uncertain economy, as many cardholders have experienced during the COVID-19 pandemic in 2020. Or they may do it when cardholders regularly use what the issuers see as too much or too little of their available credit.

Credit card companies determine your credit limit by evaluating several factors, like your credit score, your income, the available credit you already have and how much of that existing credit you're using. Ultimately, though, they can increase or decrease limits whenever they want.

When can a credit card issuer reduce my credit limit?

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

• You use too much of your available credit: When a cardholder regularly maxes out their credit limit or carries high balances, credit card issuers may view it as a sign of financial trouble. As a result, they may cut your credit limit going forward to minimize their own risk. This is especially true if you start paying late or missing payments.

• When the card is inactive or seldom-used: The company that issued your credit card makes money only if you use the card. (That money comes from transaction fees and, if you carry a balance, interest.) If you rarely use it, the issuer may be inclined to reduce your limit and, effectively, allocate that available credit to someone else who's more likely to generate income for the issuer. If you let your card sit for too long without using it at all, your issuer might 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 reduce credit limits to minimize their risk when the economy is uncertain. Most issuers cut credit limits during the Great Recession, according to a survey by the Federal Reserve. They also did so in response to the COVID-19 economy.

Can credit card companies lower your credit limit without notice?

Credit card companies are not required to notify you about lowering a credit limit unless it will lead to an over-the-limit fee, which is unlikely since many issuers no longer assess this fee. In most cases, credit card companies are required to notify you 45 days ahead of time about any changes to your account's terms and conditions, but this is one exception.

Though credit card issuers aren’t obligated to notify you about a credit limit decrease, it's common for them to do so. If you do receive such a notice, it might include a reason why the issuer trimmed your credit limit. You might even be able to ask to keep your current credit limit, depending on the reason for lowering it.

Can I avoid credit limit reduction?

You might be able to avoid a credit limit reduction, but it will likely depend on your issuer and your track record on managing your credit. The best attempt at avoiding one is to contact your issuer as soon as you learn that your credit limit is changing. You have nothing to lose by asking the company to consider keeping your prior credit limit.

If you’re on the brink of maxing out your credit card or you’re using a lot of your available credit, it may be more difficult to persuade your issuer to leave your credit limit alone. Cardholders whose limits were slashed due to inactivity may have better luck.

Act fast to contact your credit card issuer as soon as you get notice, if you get any. If you wait too long, you might have to undergo a credit check to get a credit limit increase, and there’s no certainty that you’ll get bumped back up to your previous amount.

Will a decreased credit limit affect my credit score?

A lower credit limit can affect your credit score if it materially changes your credit utilization ratio, the percentage of your available credit you're using. Utilization 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 over that percentage, the effect doesn't have to be permanent. Stay on track with payments and get your debt down, and your credit can recover.

During COVID-19 and the economic crisis that followed, some credit issuers did just that—scaling back on credit limits offered to new customers and lowering limits on existing customers. With many people losing jobs and income, lenders were concerned that consumers might overextend themselves by spending more on credit cards than they could afford to pay back.

So what can you do if your credit issuer decides to trim your limit? And what would make them choose to do that to you?

Learn the ins and outs of any unexpected changes in your credit limit and how to deal with it if your credit card company lowers your credit card limit without warning.

How Your Credit Limit Is Determined 

There are several factors that determine your credit card limit. First, the type of card plays a major role. Some credit cards only allow a standard credit limit across the board, regardless of the cardholder’s credit score, income, or other financial detail.

Other cards offer a credit-limit range. Cardholders with lower incomes, credit scores, and bad credit histories would be on the lower end of the range, while cardholders who are more qualified would get the higher amounts.

Other factors that determine your credit limit include your income, your debt-to-income ratio, your credit history, and other credit cards you have, as well as their limits.

Note

You can get one free credit report per week from Equifax, TransUnion, and Experian through December 2023 at AnnualCreditReport.com.

Can They Cut My Credit Limit Without Warning? 

Credit card companies can slash your credit limit for a variety of reasons. While the Credit Card Accountability Responsibility and Disclosure Act of 2009 provides protections related to interest rates and fees, it doesn’t prohibit credit card companies from lowering credit limits without warning.

“Generally, when you see a lender reduce a credit limit, there were indicators that the person may have trouble paying their debts,” Rod Griffin, senior director of public education and advocacy for Experian, told The Balance via phone. “It’s a way for (the lender) to protect against losses.”

The reasons why card issuers might reduce credit card limits without warning include:

• Late payments
• If the issuer wants to reduce the overall amount, it’s letting customers use
• Carrying a higher balance than normal
• If your card is inactive

If you fall behind on payments or your debt increases to a level that the credit card company deems risky, lowering your limit restricts your ability to rack up debt. Lenders can also reduce your credit limit if they’ve given out too much credit and need to tighten up their lending. Lastly, if you barely use a card, an issuer may be more likely to cut the limit so that you’re not tempted to run up the whole line during a difficult time.

Anytime a credit card company suspects that you may not be able to pay back what you’re borrowing, cutting your limit is a possibility. A good example of this has played out during the coronavirus pandemic. Creditors are most likely looking more carefully at cardholders’ spending patterns, and if there are significant red flags, credit limits could be lowered.

Note

Read the fine print of your credit card agreement—it may give specifics on the issuer’s policy when it comes to reducing or increasing credit limits.

Will a Credit-Limit Reduction Hurt My Credit Score?

If you rely on your credit cards to pay important monthly bills, a sudden decrease in available credit could mean the next bill you pay might push you past your credit limit.

A sudden decrease in credit can also have another negative impact on your financial life: increased credit utilization, which is the second most important factor in determining your credit score.

Utilization refers to how much you owe as compared to your credit limit. For example, if you have a credit limit of $1,000 and owe $300, you are utilizing 30% of your credit. If you maintain the same balance, but the credit issuer cuts your credit limit to $500, your utilization jumps to 60%.

How much can a slashed credit limit tank your credit score? In general, the higher your score to start, the bigger the point change you might see, Griffin said. More important than the total number of points, however, is whether the score change impacts your ability to qualify for other loans and credit cards.

“If your scores are in the low 700s, a change of even 20 points can be meaningful in terms of qualifying for the best rates,” Griffin said.

Whereas if you have a score of 800 or above, Griffin said a 30 to 40 point drop won’t really have much effect since the score would still be in the “Excellent” range.

What Should I Do if This Happens? 

If your credit card company does suddenly cut your credit limit, there are some simple steps you can take. 

Call Your Card Issuer and Ask Why Your Limit Was Reduced

Call the customer service number on the back of your card. Be polite but direct. Ask the phone rep to tell you why your credit limit was reduced and what you can do to change it.

“As a consumer, you always have the right to contact the lender and ask, ‘Why did you do it?’” Griffin said.

Plead Your Case

Bring up any metrics that reflect your reliability as a borrower, like good payment history, high credit score, or healthy income. Request that the issuer reinstate your previous credit limit. Anything that works in your favor is fair game for pleading your case. It’s not guaranteed that the phone rep will change your limit, but making a convincing (and respectful) case doesn’t hurt.

Decide What Your Next Move Will Be

The issuer may decide to restore your credit limit if you’ve been a good customer. Or, they may not. You can accept the new credit limit, and over time, it will likely increase again with responsible card use. If you’re not satisfied, you can consider opening a new card and transferring your balance.

Note

Your credit card company may periodically increase your credit limit if you prove to be a responsible credit card user and always make your monthly payments on time. You can also request a credit limit increase from the issuer.

How to Avoid a Credit-Limit Cut

The main ways to avoid a credit-limit cut are to pay your bill on time every month and keep your utilization low. Experts suggest using no more than 30% of your available credit limit. Good credit management is a sign to your issuer that you aren’t a big risk, and that could help you avoid a limit decrease if the issuer decides to lower limits across the board.

Dealing with sudden changes to your credit card account can be tough. Even if you have a temporary decrease in your credit limit, continue to manage your credit as best as possible. Over time, you should have an opportunity to get an automatic limit increase or successfully ask the issuer to raise your limit.

Key Takeaways

• Keep tabs on your credit and utilize free credit report sites to know your credit history.
• Set up alerts that let you know when you’re approaching a certain balance on your credit cards. When you’re getting close to that balance, cut back to keep your utilization low.
• Work with your lender early and often. Especially during times of economic crisis, credit issuers may be more willing to work with you.

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Sources

The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.

1. PR Newswire. "Equifax, Experian and TransUnion Extend Free Weekly Credit Reports in the U.S. Through 2023."

   Why would a credit card drop my limit?

   As outlined in the Fair Credit Reporting Act, credit card issuers have the right to lower credit limits at will and may do so when a cardholder appears to be in financial trouble. If you missed due dates or carry high debt and only send the minimum payments, the issuer may shorten the limit.

   Can a credit card lower your limit without telling you?

   Card issuers can change your credit limit without notice “Lenders aren't required to notify cardholders regarding credit limit decreases unless the reason for the decrease was based on adverse information on a credit report,” Tayne tells CNBC Select.

   What do I do if my credit limit is lowered?

   3 Things to Do if Your Credit Limit Is Lowered.

   Contact your issuer. Ask your bank why your credit limit was reduced. ... .

   Pay down your balance. As a rule of thumb, you you should try to keep your balance no higher than 30% of your overall credit limit. ... .

   Consider transferring your balance..

   Can credit cards reduce your limit?

   Credit card companies generally can increase or decrease credit limits, including reducing your credit limit so that you no longer have any available credit. If you no longer have any available credit, you cannot make any charges until you pay off some of your existing balance.