Can Credit Card Companies Reduce Your Credit Limit Without Warning?

By Saroni Chakravarti | May 13, 2019

Your Credit Card limit defines the monthly spend threshold on your card. But what happens when your card issuer slashes your limit without warning? Let’s find out.

Can Credit Card Companies Reduce Your Credit Limit Without Warning

You’re probably aware that your Credit Card has a credit limit that defines your monthly spend threshold. However, to maintain a healthy Credit Score, it’s still not enough that you don’t overshoot your Credit Card limit when you’re charging expenses to your card. Limiting your debt-to-income ratio to below 30% is what you should aim for at all times to keep your Credit Score in the pink of health. If you’re not sure what your credit limit is, you can always check with your card issuer or view your Credit Card statement.

While your credit limit mostly remains fixed over your Credit Card term, it is possible that your Credit Card issuer has slashed your credit limit without warning you. So what do you do in this event? And what all factors can contribute to a slash in your credit limit?

Has your credit limit been recently lowered? Check how this has affected your Credit Score

How Do Credit Card Companies Determine Your Credit Limit?

A lot of factors account for your Credit Card limit. To start with, the kind of card you’re using plays a major role in defining the credit limit. Some cards, for instance, have a standard card limit across the board regardless of the cardholder’s Credit Score, income etc. Some other cards allow a range when it comes to credit limits-cardholders with lower incomes, Credit Scores, and worse credit histories can qualify for the lower end of the range, while cardholders who are more qualified would get the higher credit limit within that range.

Some of the factors that affect your Credit Score are:

  1. Your debt-to-income ratio: Your debt-to-income ratio is the total of all your monthly debts like your Credit Card payments and loans, divided by your net monthly income. Lenders gauge how much additional debt you can afford to repay based on your present situation.
  2. Your credit history: Your credit history is a record of all the payments you’ve made in the past towards servicing your debts. Banks look at your credit history too to gauge your creditworthiness.
  3. Other Credit Cards and their credit limits: If you have several other Credit Cards, your debt-to-income ratio on these Credit Cards will also determine the Credit Card limit on the card in question.

Additional Reading: How To Add Your Child As An Authorised User On Your Credit Card

Can Your Card Issuer Reduce Your Credit Limit Without Warning?

Although Credit Card companies usually refrain from slashing cardholders’ limits, due to the following reasons, card issuers could still cut credit limits without warning:

  1. If you’ve been consistently missing your payments or your debt-to-income ratio has increased to a point where your company deems it risky, your card issuer can slash your credit limit without warning.
  2. If your Credit Card company suspects that you will not be able to pay back what you’re borrowing, they can trim down your limit to prevent you from spending more.
  3. A bank or Credit Card issuer can generally lower or increase your credit limit at any time as long as it’s allowed in the Credit Card agreement.
  4. Sometimes the card issuer can also lower the credit limit to better fit your usage if you have not been using a significant portion of the credit limit.

While these could be some of the reasons why your bank may lower your credit limit, it cannot, however, lower your credit limit and slap you with an over-the-limit fee or penalty fee if you happen to exceed the new lower limit. They must give you at least 45 days from receiving notice of the lower limit to charge you any fees.

Additional Reading: A Stress-Free Guide To Managing Your First Credit Card

Steps To Take When Your Credit Limit Is Lowered:

If your bank slashes the credit limit without intimating you, here are the following steps you can take:

1. Call your Credit Card company and ask for an explanation:

You can call your Credit Card issuer and politely argue your case and request them to re-instate your older credit limit. You could bring up points like good payment history, high Credit Score, or healthy income to reverse the credit limit decrease.

2. Check your Credit Score and credit reports:

The lowering of your credit limit will also impact your credit utilisation ratio and this can lead to a drop in your Credit Score. Keep a watchful eye on your credit report at all times to keep them error-free.

3. Keep a lid on your purchases:

It’s crucial that you limit your credit utilisation ratio to below 30%-in fact, stay well below it if you can. If your credit limit gets lowered, take the right steps and be vigilant about checking your credit report. If you’re considering applying for a higher credit limit, keep up the good credit habits like paying your bills on time and in full.

Credit Cards can be a valuable financial tool if used right. While you may request your bank to re-instate your older credit limit, remember to not use up your credit limit just because you have enough at your disposal. Did your Credit Card limit get slashed recently? Find out if this has impacted your Credit Score or not.

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Category: Credit Cards Credit Score Financial Planning Managing debts Money Management UCN
Saroni Chakravarti

About Saroni Chakravarti

Saroni loves all things quaint and old world- be it art, music or cinema. She has a special knack for spotting the weirdest traits in people and can't for the life of her understand why she attracts the worst co-passengers. Despite her cynical exterior, she still hopes for a world that will be free from discrimination and cruelty. When she's not spending her day commuting, she can be found watching funny videos, reading, and sending out needy vibes to strays around her.

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