How To Avoid Credit Limit Reduction In 7 Simple Ways

Borrowing can be a lifesaver when you need money fast. Your credit limit is the amount your creditor is willing to lend you.

This limit not only protects borrowers from debt. It protects the business. Lenders want to lend to those who can pay back (and probably don’t need it).

To understand what kind of borrower you are, lenders look at your credit score, income, and behavior. As any of these change, lenders will change your credit limit to better manage risk. Often without telling you.

If you borrow without knowing your limit, you’ll likely exceed the safe utilization rate. After a big purchase, you’ll see a credit score drop, which lowers your limit even further.

Maybe you wonder “Why is this happening to me?” It’s because:

a. You changed your financial situation (income, borrowing frequency, consumption)

b. Something external is affecting those credit limits

If you want to avoid credit limit reduction, the first step is to understand what causes these changes.

Why Is My Credit Limit so Low?

Why Is My Credit Limit so Low

When you find your limit reduced, you may think you did something wrong. But don’t forget that lending is a business: lenders change conditions based on the market, not just you.

Here are the six reasons for a credit limit decrease (often due to multiple):

Your Credit Score Is Decreasing

It’s the most direct cause. Good borrowers get higher limits while the bad ones get more restrictions. Anything that affects your score can affect your limits:

  • Not paying on time
  • Having too few lines of credit
  • Utilizing more than 30% of your limit
  • Not having enough credit history length
  • Borrowing/making hard inquiries too often

If you lower your credit score, that lowers the limit. Because your limit is lower, your utilization rate increases and your score keeps lowering, affecting your limit. Avoid this negative feedback loop.

If your utilization rate is low enough, your score should be safe even if the limit decreases.

The Economy Is Not Doing Well

Lending works because of risk management and cash flow. There must be enough money to lend, and you want to make sure people can payback.

The general economy/S&P 500 helps us understand what people are likely to do. In a weak economy, for example, people earn less and borrow more. In a strong economy, everyone makes money and can easily pay off loans, if they even need one.

Consider the 2020 downturn. People struggled financially, which is a risk for lenders. If the trend continued, most borrowers wouldn’t pay back on time. That’s why some creditors limited their service.

Mind that the economy is rarely the main reason for the limit reduction. It has more to do with your income or utilization rate. Lenders are always open to lend to their best clients.

You Stopped Using Your Credit Card

How much credit you use affects your limit.

  • Overusing credit lowers your score and limit because you’re riskier for a lender
  • Underusing only lowers your credit limit because you don’t need it

Never using credit is neither good. Because the day you want to borrow, the limit will be too low.

So keep using credit, no matter how little it is. You can downgrade your credit lines and make a minimum monthly payment.

If you’re planning for big purchases, these small payments will save you money later.

Your Creditor Detected Suspicious Activity

To manage risk, lenders seek predictability. They want to always pay on time and keep your behavior the same.

Whether your finances change for good or for bad, that uncertainty can affect your credit limits. For example:

  • Your income rises/lowers suspiciously quickly
  • Your spending/borrowing money outside of your state/area
  • You’ve always had one card. But this year, you opened five new credit lines
  • You’ve never used more than 4% of your limit in years. But this month, you’re using 40%.

Maybe all those moves help you make more money. But for a lender, it’s risky. If you’re behaving differently from the “you” they know, it may suggest identity theft.

The creditor’s approach is: “wrong unless proven right.” So maybe you’re not doing anything wrong. They might have lowered your limit just to be safe.

Tell them everything is okay and ask to restore the previous limit.

Your Income Has Lowered or Become Inconsistent

While income doesn’t affect your score, it does affect your credit limit. Creditors are legally required to check your accessible income, so you don’t get into some unpayable debt.

For example, you may need to provide proof of income for the last three months, maybe your annual income.

Here, consistency matters more than the numbers. Your monthly income should be regular for most of the year, otherwise, your limit will be based on the lowest month. If your annual statement shows two months of $0 income or more, that can turn off most lenders.

Earning $10K+ per month neither means much if your income history length is less than a year.

Your Creditor Made a Mistake

You can only control your credit based on your assumptions. While all the previous factors influence your limit, only your creditor knows the main reason. After you tried everything, the only thing you can do is ask them what happened.

If you did everything right, it should be easy to restore your previous higher limit. Perhaps they made a mistake and can recover it immediately. Either way, it’s the fastest method.

How To Avoid Credit Limit Reduction?

How To Avoid Credit Limit Reduction

Although it’s rare, this limit reduction can happen, whether you had something to do with it or not. But reduction is only a problem when:

  • Your limit is too low to finance the purchase you want
  • Your utilization rate increases without having borrowed more

Now that you know the causes do your best to avoid them. At least, get higher credit limits than you need. So when it happens, it doesn’t affect you as much.

Use Your Credit More Often

Even $1 payments can lead to a different credit limit. Credit is about how well you do with money, regardless of the amount.

If you borrow and pay back small amounts, that increases your score and so your limits. If you never borrow, then the lender will think you don’t need it. They will lower your limits so that they can lend that money to other borrowers.

Use your credit often, and:

  • Your credit history length will increase
  • You’ll reinforce your payment history
  • You’ll expand your lines of credit

Increase Your Limit With More Cards

Assuming you qualify for new cards, it’s the simplest way to increase limits. Create a new card, and you could instantly double your credit limit. Still not enough? Create another one.

Of course, it’s easier said than done:

  • Most credit cards have monthly fees (e.g., if keeping zero balance)
  • Creditors will lower limits on the cards you don’t use
  • New credit lines will lower your score temporarily (see hard inquiries)

Yet, there are people with 12+ credit lines and barely have any issues. Why?

  1. You can still find cards with low fees or no monthly charge
  2. You don’t need to spend big money on all cards. Just the minimum to keep them active
  3. You can downgrade the credit lines you don’t use

Downgrade Unused Credit Cards

If you stop using a credit line, it makes sense to delete it to stop paying every month. For your credit score, however, that can be devastating. It lowers your no. of credit lines and history length.

So if you had one card for ten years, create a second one this year, and remove the first, your new history length is one year. It won’t help your credit limit.

Instead, downgrade those cards or suspend them temporarily. Most creditors will let you do it if you keep a minimum balance, sometimes for free. You can downgrade and upgrade whenever you want.

Keep Your Utilization Rate Below 30%

According to your plan, you can use 30% of your credit while keeping your credit score. But does your plan consider uncertainty? Look at all the factors that affect your limit outside your control.

If you follow the 30% rule, you’re not giving yourself enough margin of error. Lower it to 20-25% to be safe. If that sounds too low, you need to increase your credit limit.

Creditors don’t need to notify when they change limits. The day you make a big purchase, you could lose your credit score because your limit changed at the last minute. Or worse, you get into a negative feedback loop where your credit score and limit reduce each other.

0% utilization rate is neither good because it shows no credit activity. And if your ideal rate is 20-30% that doesn’t mean you should use that credit. Banks often lend more than you need, which may lead to overspending and debt.

Consolidate Your Debt

According to CNBC, “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,”

One of which are missing payments. The next month after you default, you’ll find your credit limit reduced.

But just because you can’t pay, that doesn’t mean you can’t keep your limit. All you need to do is improve your payment history. When you pay on time often (regardless of the amount), missed payments don’t matter that much.

If you have multiple debts, first pay off the ones you can (debt avalanche). Then, consolidate the debts you can’t pay to minimize their impact on your credit score.

Pay Ahead of Time

A good credit score correlates with better limits. And to protect that score, it’s better to plan payments as soon as possible. The more time you have to manage debt, the more opportunities you have to avoid missing payments.

Suppose that, for whatever reason, you cannot meet the next payment. But you believe that you’ll figure it out in the end, so you wait. You wait until it’s too late to fix things, and you decide to ask your lender for consolidation.

Depending on the person, you may get approved or not. How early you ask for help also influences that decision.

If there’s a lot of time before the deadline and you negotiate the debt, everything should be fine. But if you wait until the very last minute, the lender could see it as payment evasion. Don’t wait until it’s too late.

Always Ask for a Credit Increase

Sometimes, your credit score will fall and there will be nothing you can do about it. You may not be able to fix the reduction, but you can always increase.

Think of your credit limit as an indicator. The lower your utilization is, the better. You should always aim to increase your limit and reduce that rate, even when you don’t need that money.

You may only use 10% of your limit. But if creditors decide to cut it in half, you’re still 20% out of 30%. Do it now while you don’t need it. Because when you do need money fast, lenders won’t be as helpful.

How to Fix Credit Limit Reduction?

How to Fix Credit Limit Reduction

Let’s say you were about to make a big purchase. Everything was going well until you find that your credit limit has decreased. Nobody told you about it, and now you can’t finance that house, car, or loan.

How can you solve this problem?

Ask Your Creditor

Before you try anything suggested in this guide, contact your creditor. Don’t waste your time solving what ‘you think that the problem is.’ Your creditor will tell you exactly what happened and what to do.

If they haven’t notified you about it, then it’s possibly reliant on the creditor’s business and not your credit history.

Sometimes the drop is a mistake, and they will restore your previous limit as soon as you ask them.

Consider Resetting Your Credit

What if your low credit caused credit limit decreases? Even with a bad score, you can still apply for credit lines and increase your limit that way. But if you’re thinking of financing/borrowing, then it’s better to fix your score first.

But is it worth your time?

If repairing your score takes longer than building a new one, then reset your credit. Start all over, and your credit should look better within a year.

Note: there’s no simple way to reset your credit scoreFraudulent lenders may promise to erase your score or forgive your debt, only to run away an advance payment. Your best options are:

a. Get someone with a higher limit to buy for you

b. Delay the purchase until your credit score recovers

If that’s not fast enough, consider alternative lending options.

Wait for the Right Time to Finance

When you finance can affect both your score and credit limit. Before you buy something, make sure you have the best score possible and you’ve double-checked your limits.

If you buy at the wrong time and it lowers your score, that will prevent you from getting better deals later. If you find your score higher than usual, take advantage, as it may return back to normal later.

This doesn’t mean you should use all the money you can borrow. It’s sometimes cheaper to earn it yourself and pay in full than to finance at higher rates. Or boost your score first.

Increase Your Income

Along with your credit score, your income has the most influence on your credit limits. Your lender isn’t going to allow sums that you can’t payback. But if you suddenly start making more money, your limits increase automatically.

Even lenders may contact and ask if you’d like to borrow some money.

Income is the ultimate proof. Not only it gets you approved for loans, but you earn enough not to need one in the first place.

It’s easier said than done when your income depends on a job. If you feel stuck financially, check these side hustles you could start right now.

Keep Checking Your Credit Limit

Keep Checking Your Credit Limit

Credit limits use to change at the worst possible moment. So if you don’t want to get caught by surprise, make sure you’re reviewing it often. You can find it on your online banking platform.¡

You have the highest chance to recover your higher score if you contact your creditor immediately (<24h).

If you can’t fix it after all these steps, it might have something to do with identity theft. Regardless of the cause, the best response is to ask for help asap.

Luckily, fixing your credit limit is easier(faster) than raising your credit score.

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