Although most of us begin our credit journey with one of the many starter cards on the market — and the tiny little credit limits that come with them — a year or two of good credit habits will unlock better credit cards, more perks, and higher credit limits.
Indeed, consumers with good credit and even moderately sized incomes can receive credit cards with limits in the thousands of dollars, and credit limits of $20,000 or more are not uncommon for the most qualified cardholders.
But, making it to the big leagues of credit limits doesn’t mean you can enjoy five-figure spending credit lines indefinitely. High credit limits are a cardholder privilege — not a cardholder right.
Yes, Issuers Can Reduce Your Limit (and They Can Do It Without Warning)
In general, your credit limit is at the sole discretion of your credit card issuer, and your issuers can raise — or lower — your credit limits as they see fit. This right is typically listed in a credit card’s terms and conditions and/or cardholder agreement.
If you have a secured credit card, you’re likely safe from sudden changes, as secured cards usually have a credit limit that is equal to the amount of the security deposit. That said, even secured credit card limits can be subject to the issuer’s discretion.
Credit card issuers can not only change your credit limit at any time, but they can usually do so without giving you any warning. This applies to both increases and decreases. So, if your credit limit is changed, often the only way you’ll know is to log into your credit card account and check on your limit.
The primary exception to the lack of notification is in the case that your credit reports are what spurred the limit reduction; the Fair Credit Reporting Act (FCRA) requires issuers to notify customers when adverse actions are taken as a result of information from their consumer credit reports.
Additionally, the only real restriction on the issuers’ ability to change your credit limits is that they can’t reduce your limit to an amount below your outstanding balance and then start charging you over-limit fees. You typically have at least 45 days from the time your limit is reduced before you should see any fees for being over your limit.
Sudden (Negative) Credit Score Changes Can Lead to a Lower Limit
Although credit card issuers don’t actually need a reason to reduce your credit limit, they rarely do so without some sort of impetus. The most common reason a credit card issuer reduces your available credit is in response to sudden changes in your credit profile that increase your credit risk.
Essentially, your credit risk is how credit card issuers determine your rates, fees, and credit limits, with some influence from your income, as well. High-risk cardholders are usually charged higher rates and offered lower limits to reduce the potential losses to the issuer if something were to go wrong with your finances.
Sudden increases to your credit risk are a sign that you may be having financial trouble. Credit card issuers will often try to limit their exposure to your increased risk by reducing your credit limit if it spots any new red flags.
For example, if one of your credit card accounts is suddenly reported to the credit bureaus as delinquent, this may make your other credit card issuers nervous about the state of your financial affairs. As a result, they may preemptively reduce your credit card limits to protect themselves from potential losses if you become unable to make payments on more accounts.
Using Your Card Too Little — or Too Much — Can Also Get Your Limit Reduced
Another common reason to see your credit limit reduced is if you aren’t using your credit card account often enough (or at all) — especially if the card doesn’t charge an annual fee. Credit card issuers don’t make money on cards that aren’t used; interchange fees and interest charges are major sources of income for issuers, and neither can be collected if a card isn’t used.
In other words, if you allow a credit card account to go unused, the credit card issuer may feel that the credit you were extended will be more profitable if allocated to other customers who use their cards more frequently. (Store credit card issuers are particularly bad about reducing credit card limits for low usage.)
At the other end of the spectrum, using your card too much — i.e., having a card that is maxed out or too near its limit — can also cause the issuer to drop your credit limit. This goes back to the idea of limiting risk; credit card users with maxed-out credit cards tend to be at a higher risk of default than users who maintain low balances.
Credit Limit Reductions Aren’t Typically Permanent
The biggest problem with having your credit limit reduced — other than putting a crimp in any plans for big purchases — is that it can negatively impact your overall utilization rate, especially if you don’t have many credit lines of significant size to buffer the drop to your overall available credit.
Basically, your utilization rate is the ratio of how much credit you are using over how much credit you have available. A high utilization rate indicates high credit risk — and vice versa. Credit scoring models (and creditors) look at both the individual utilization rate of each credit card, as well as the overall utilization rate across all of your credit accounts. The higher your level of overall available credit, the less impact a reduced limit should have to your credit score.
On the bright side, reductions to your credit limit don’t have to be permanent. Just as issuers can reduce your limit at any time, they can also increase your limit at any time. So long as you address whatever issue led to the decrease in the first place, you can likely expect your credit limit to (eventually) be increased once more.
Of course, how much of an increase you see will depend on your specific situation. If your credit limit was reduced due to low credit card activity, for instance, then regularly using your credit card again may result in your original limit being restored gradually over time.
In some cases, you may be able to recover your original credit line simply by calling the issuer and requesting that your limit be restored. However, keep in mind that some card issuers may require a hard credit inquiry to process a credit limit increase request, and the success of your request will likely depend heavily upon the reason your limit was reduced.
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