Why Banks Lower Credit Card Limits

A credit card limit is the amount of money a consumer is allowed to charge on a credit card. A bank can legally lower this limit whenever they choose–even if the consumer has never missed a payment.

Even Good Customers Suffer From Lower Limits

Across the country, individuals are noticing their credit limits dropping along with their credit scores. When questioned about the situation, Nessa Feddis of the American Bankers Association was quoted earlier in The New York Post as saying, “It is a risky time for anyone to be making loans…we don’t know who is going to lose their jobs so everyone is riskier.”

Although any credit card company that plans to lower its customers’ limits must notify the customer, it isn’t just those who have late payments or repeatedly rack up fees who are in danger. Even good customers who have never missed payment may lose their lofty limits.

Factors That May Cause a Bank to Lower Spending Limits

Unfortunately, credit card companies can opt to lower customers’ limits for a variety of reasons. Some of these reasons are:

  • Dangerous economic conditions – The bank feels like a struggling economy may make even good customers more likely to default on the amounts that they owe.
  • Change in credit score – Lenders keep track of their customers’ credit ratings. If a consumer’s credit score drops, a bank may lower the spending limit on his or her credit card.
  • Negative entries on a credit report – If any individual default on a bill to another company, his credit card company may immediately lower his spending limit to minimize their own risk.
  • Late payments – Late payments indicate that a consumer may be having financial trouble and commonly precedes a lower limit.
  • Change in spending habits – Credit card companies closely monitor the spending habits of their customers. If an individual’s spending habits change, it may indicate a change in financial circumstances and a bank may lower his or her credit card limit.

Credit Limits Directly Affect Credit Scores

A portion of each individual’s credit score is calculated by a debt-to-limit ratio. This is the amount of money a consumer owes on his card weighed against the card’s spending limit. The ideal debt-to-limit ratio is roughly 10%. Even consumers who limit the amount they charge onto their credit cards may not be safe. When a spending limit plummets, even carrying a moderate amount of debt can be detrimental to a credit score.

Restoring a Credit Card Limit

Individuals who discover that their credit card limit has been lowered do have recourse. Although some banks may not be open to restoring a lost limit, very few customers ever request it. Being a good customer and having held the card for several years helps when requesting the return of a previous limit- but anyone can request that their spending limit be restored.

It is suggested to avoid gambling and visiting top online casinos as these are addictive and may ruin financial status.

Another option for consumers is to transfer the card balance to another card that offers a higher limit. This helps individuals keep a high debt-to-limit ratio and in turn, a higher credit score. Balance transfers have the added bonus of sometimes offering temporary low or zero percent interest rates.

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