Banks will occasionally cut a cardholder’s spending limit if they maintain a high balance - even if that individual has an otherwise perfect credit history. That’s because many card issuers interpret a long-standing high balance as an indication that things aren’t going all that well for you financially and they are looking to minimize their potential loses. Although all creditors are different, some may decide to reduce an individual’s spending limit when their outstanding debt remains at 60% of their credit limit for several months. Another “risk trigger” that could influence your creditor to lower your spending limit is a regular pattern of late payments. Sometimes a credit cut occurs even when what can be considered a typical risk trigger is not present.
This tightening of lending standards leading to the slashing of credit limits has become more and more common recently, as creditors grapple with high default rates and increasing amounts of delinquent accounts.
A reduction of your credit card limit is not only annoying, it can have a negative effect on your overall credit score. One of the most important factors that plays into someone’s FICO score in their credit-to-debt ratio
, so if you are carrying debt on your card and your spending amount is suddenly stifled, it could have a bigger impact on your financial future than you realize if you are looking to borrow money down the road.
So it is important to maintain your current credit limit and even obtain occasional increases. Some ways to go about that are:
Charge wisely – but often
One way to incite a credit line increase is to use your card frequently but be mindful that you don’t exceed 40% of your maximum. Balances should ideally be kept between 10 and 30 percent of your spending limit. Even more ideally you should pay your balance off in its entirety at the end of every single billing cycle. This sends a message to your card issuer that you have the income to support whatever charges you put on your credit card. If you use your card often and pay off your balance in full every month, you very well may be rewarded with a credit increase without even having to ask for one.
Make sure you don’t get carried away and continuously go over the halfway mark of your credit limit. Repeatedly spending over 50% of the maximum amount of credit you are allotted acts as a red flag to creditors because research has proven that consumers who amass debt amounting to 70% of more of their spending limit have a higher likelihood of defaulting on their payments.
Whatever you do, don’t be late.
Always send your payments in on time each and every billing period. If you are concerned about a payment sent by mail reaching your credit card company in time, then pay your bills online. Accounts with frequent late payments get labeled as “high risk,” which means you are more likely to have credit taken away from you as opposed to being added.
Feel free to ask.
Credit card companies aren’t as generous about granting unsolicited credit line increases as they once were, which means that if you want more credit you may have to simply go ahead and ask for it. The majority of credit card accounts are eligible for a credit line increase once a year, so you can feel comfortable giving them an annual call and asking them to review your account.
However, if the customer service representative asks your permission to pull your credit report in order to give your credit history a closer look, just say no. Such “hard pulls” show up on your credit report and negatively ding your credit score, so any benefits you would gain by increasing your credit limits would be offset. It’s better in that situation to simply inquire as to when your account might be eligible to have your credit limit increased automatically and make a note of that date.