In response to the inevitable credit crunch many credit card issuers are lowering credit limits without advanced warning to cardholders. In their defense, many borrowers have shown a propensity for maxing out credit limits with little promise of repayment. As a way of hedging against potential write-offs credit card companies have decided to minimize their exposure by reducing credit limits, and therefore the amounts available to charge.
How Does a Lender Lowering My Credit Limit Affect My FICO Score?
If you are like me and are not currently using your credit cards a credit line reduction may seem harmless. However, it does have an impact on your FICO score, not because the limit reduction is viewed as an adverse action, but because it raises your credit utilization ratio. The amount of your outstanding balances accounts for approximately 30% of your FICO score. The amount you owe as a percentage of your total credit limit is referred to as credit utilization. Run this figure above 30% and your FICO score will likely take a dive.
My Credit Limit Has Been Decreased. What Are My Options?
- Call to Get Your Limit Reinstated. Call the customer service number listed on the back of your credit card. Explain your situation to the customer service representative and complete the identity verification process. Automatic credit limit reductions are typically performed as the result of a computer audit. Once a human being reviews the account and considers all the factors they may be able to restore your credit limit. If not, ask to speak to someone in the credit department, or a customer service supervisor. These individuals usually have a higher lending authority and may be able to override the customer service representative’s decision (which is likely still driven by a computer model).
- Transfer your balance to another card. If you have an open line on another credit card with a higher limit, and can transfer the balance without being assessed a fee, it might be worth the effort to move the balance over to the new card.
- Do Nothing. This actually happened to me a while back on a credit card I only owed a few hundred dollars. I called the credit card company and they refused to reinstate my limit. I spoke with a supervisor who also refused, as did a representative in the credit department. None of the three could explain to me why the limit was reduced in the first place. My FICO score had not changed, my charging patterns had not changed (accept for the fact my charging was greatly reduced), and I wasn’t shopping for new credit. Regardless, they refused to budge so I paid off the account in short order. Against my desires to tell them to take a flying leap I decided to keep the account open as closing the account would reduce my total credit line and could potentially send my FICO score lower.