Should I Reduce My High Credit Limit If I Don't Use It? This post contains references to products from one or more of our advertisers. We may receive compensation when you click on links to those products. Terms apply to the offers listed on this page. For an explanation of our Advertising Policy, visit this page. There are a lot of different
factors that influence your credit score, the biggest ones being paying your bills on time, and the amount of credit that you're utilizing. For example, if you've got $20,000 of available credit between all your accounts, and you're running a combined balance of $17,000, that represents a high credit utilization, and tells credit card companies that you're spending outside of your means. If you apply for new credit, chances are that you're going to continue spending similarly, so a lot of
companies will decline applicants who have high utilization. TPG reader Mikhail tweeted me: "@thepointsguy I have a high credit limit that I don't need. Can I lower it without impacting my credit score? I pay the balance in full." First, Mikhail, good job for paying your balance in full! You should also try to pay it as early as possible, because even if you pay in full, credit card companies report at different times, and can even report your balance
before they receive your payment. That's one aspect of credit that I hate; it's not right that even if you pay your bill on time, you can still have that balance reported as utilization. At any rate, given that a low utilization is better, there's really no benefit to reducing your credit limit, even if you don't plan on using it. Your score will not go up if you have less credit. If the credit card company reports your credit mid-month (before you've paid), and you have
less overall credit available, your utilization will appear higher and your score could drop. So, preemptively slicing your available credit will probably just hurt your score. I'd say keep your credit in case you ever need it. You might get a new job and have the ability to pay for a large company expense out of pocket; you'll be reimbursed and you can keep those points. I think having the available credit just in case of a situation like that is useful, and to make sure whatever
credit you do use results in a lower utilization.
Sign up for our daily newsletter If for some reason you apply for a new card and are declined or are put in pending because you have too much available credit, you can always call up and request to move credit around. Most banks will allow you to take existing credit and apply it towards the opening of a new account. Again, my advice is that you don't reduce your credit limit, as doing so will
probably hurt your score. Check out these related posts for more info: How Card Applications Affect Your Score If you have any
additional questions, please message me on Facebook, tweet me @ThePointsGuy, or send me an email at . Featured image by Keep track of your FICO score so you can get in on the best credit cards. (Image courtesy of FICO) Editorial Note: Credit Karma receives compensation from third-party advertisers, but that doesn’t affect our editors’ opinions. Our third-party advertisers don’t review, approve or endorse our editorial content. It’s accurate to the best of our knowledge when posted. Recently, I received a letter from Capital One alerting me that my card’s credit limit — the total amount I’m allowed to spend on my credit card — had been lowered from $15,000 to $10,000. My first reaction was, “But I have good credit!”My credit limit is a factor in determining my credit card utilization, which refers to how much of my available credit I’m using at a given time. Most experts recommend keeping your credit card utilization below 30%. Lower credit utilization rates can suggest to creditors that you can use credit responsibly, so a low credit utilization rate may mean higher credit scores. Given that my credit limit had gone down and I had an existing balance on my credit card, I knew that my credit card utilization would be higher — and that this would likely have a negative impact on my credit.
Why had my credit limit been reduced?In my case, “low usage” triggered the decrease. My letter from Capital One was titled “Important Change to Your Account” and read: “We noticed that you have not been using a significant portion of the credit line on your account,” adding, “to better fit your usage, we have changed your credit limit from $15,000 to $10,000.” Despite the fact that I had been a customer for almost a decade, never missed a payment and have excellent credit, my card issuer decreased my credit limit. As I later learned, these things don’t necessarily matter. A bank or credit card issuer can generally lower (or increase) your credit limit at any time as long as the credit card agreement allows. Low usage isn’t the only reason a lender could decrease your credit card limit. You might find yourself in a similar situation to mine if …
One thing a card issuer can’t do is lower your credit limit and then immediately slap you with an over-the-limit fee or penalty rate if you happen to exceed the new lower limit. Issuers must give you at least 45 days from receiving notice of the lower limit to charge you any such fees. If you have any questions about how your particular credit card issuer handles credit limits, brush up on your card’s terms and conditions. Your issuer’s exact rights to change your credit limit are typically outlined in the fine print. Was it bad to keep my credit card utilization so low?I admit it: I hardly touched that credit card in the past five years. It doesn’t have an annual fee, so I kept it open to maintain my 10% overall credit utilization rate. I also refused to close my card because I’ve had the account open for almost a decade. Closing the card would likely negatively affect the length of my credit history — another factor used to determine my credit scores. I called Capital One’s customer service to get more information and the rep confirmed it was due to the “low usage” credit line. In hindsight, I probably shouldn’t have neglected my credit card so much these past five years. There’s a balance between low utilization and no utilization, and credit card companies may not look favorably on the latter. While credit-scoring models often favor positive use of credit cards, no use isn’t necessarily responsible use — as it likely won’t register as financial activity and won’t be reported to the bureaus as an indication of how you use credit. And if you never use a card, you may risk getting your credit limit lowered or having the account closed, which could have a negative impact on your credit. 3 steps to take if your credit limit is loweredIn my case, it wasn’t a huge deal that the card issuer lowered my credit limit because I have a handful of other credit cards with high credit limits and my overall debt is very low. But not everyone is in this boat. If you’re struggling with credit card debt, try to avoid maxing out your credit card — ideally you won’t even get near the lower credit limit. Instead, consider paying off the card as quickly as possible so that you can lower your credit utilization. Here are some steps you can take if your credit limit has dropped. 1. Call your credit card company and ask for an explanationCall your credit card issuer’s customer service department and ask why your credit limit was decreased. Then, ask if it can increase your credit limit to the original credit limit amount. In my case, I was told that I would need to apply for a larger line of credit if I wanted it back up to the original limit of $15,000. The customer service rep assured me that this increased limit request would result in a soft credit inquiry and could be done completely online. 2. Check your credit scores and credit reportsA credit score drop can result from a number of events, including a hard inquiry, a derogatory mark or a missed payment. Credit card utilization is one piece of the puzzle, but it’s by no means the whole puzzle. Keep that in mind when you check your credit scores for any changes. You’ll also want to check your credit reports to make sure they’re error-free, as they contain key details on your credit accounts. Each year, you can receive three free credit reports — one from each of the three major consumer credit bureaus (Equifax, Experian and TransUnion) from AnnualCreditReport.com. Of course, you can always check your VantageScore 3.0 credit scores from TransUnion and Equifax for free on Credit Karma. 3. Use your card strategically for small purchasesMy card issuer decreased my credit limit because I simply wasn’t using the card, so I linked it to a few recurring subscriptions (Audible and Netflix) to make sure the account stays active. You don’t want to run the risk of having your credit limit lowered or account closed if it’s going to negatively affect your credit. Even though those subscriptions only charge a small amount each month, my rationale is that it’s better to have some activity than none at all. I also added the card to my Apple Wallet so that I can occasionally use it for other purchases. The plan is to pay it all off each month on time and in full, so that I don’t accrue any interest or rack up unnecessary debt. Next stepsGetting your credit limit lowered is something that may be out of your control, but if it happens, take the right steps and be vigilant about checking your credit. Make sure nothing out of the ordinary has happened to your finances that might have caused the drop in your credit limit. Check your credit reports for errors. Then, if interested, call your credit card company and ask about steps you can take to increase it again. Also, remember to keep up good credit habits, such as paying your bills on time and taking steps to pay off your existing debts. You probably won’t see the results you want overnight, but you may qualify for a higher credit limit in the future. About the author: Claire Tak has a background in editorial content marketing and strategy and writes about credit cards, paying off debt and saving money. She’s obsessed with travel and audiobooks. Read more. Does a lower credit limit hurt score?Lowering the credit limit on a credit card could hurt your credit scores if it raises your credit utilization rate. Your credit utilization rate measures how the amount of your available credit (your credit limits) compares with the balances on your revolving credit accounts (typically credit cards).
Is it good to decrease credit limit?If not paired with a reduction in overall balance, a decrease in your total credit limit will almost always increase your utilization ratio. To keep utilization in check and avoid doing too much damage to your credit score, it's recommended to keep your ratio under 30%, but the lower, the better.
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Does lowering your credit limit affect your credit score
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