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Why was your credit card limit reduced?

Credit Card Limit Reduced? You May Never Shop In This Town Again!

by / 0 Comments / Mar 24, 2015

Was your credit card limit reduced? Ever walk into a store, ready to make a big purchase with your credit card, just to find that you can’t because the credit limit has been slashed? This has happened to me, twice now. It’s a nasty surprise.

This is also why it’s wise to have a back-up card or enough cash in a checking account to pay for what you want, but that’s another story.

There are a few reasons a credit limit is reduced without warning:

  • Data theft.
    If you’ve paid attention to recent news reports, you know that large scale data thefts are giving merchants and creditors major headaches. Thieves have managed to steal the personal and financial data of many millions of cardholders, causing widespread identity theft problems. Because consumers are protected against fraudulent charges, credit card is-suers typically absorb the cost of the crime. To minimize damages, some reduce the credit lines of those who used their cards at the compromised retailers.
  • Out of balance utilization ratio.
    Not being able to charge what you want is an inconvenience, but if you carry balances over from month to month, your credit rating can be hurt. Credit utilization is the second most important factor in credit score calculations (the first is the way you’ve made your payments). Owing less than 30 percent of what you can charge is ideal. But say your credit card has a $10,000 limit, and you owe $1000. You would only be utilizing 10 percent of the line, putting you in great scoring shape. Yet if the line dropped to $2,000, you’d immediately owe 50 percent and your score would decrease.

In most cases it’s a temporary credit limit reduction (unless you’ve done something wrong) but if you happen to be in the process of applying for a mortgage or other big ticket financing ar-rangement, it could really mess things up for a bit.

Okay so that’s data theft, and outside of making sure that you pay your balances in full, you can’t control crooks or creditors actions.

Your Credit Card Limit was Reduced

Other reasons you might have your credit card limit reduced come from your activity. For example:

  • You haven’t used the card in a long time.
  • You recently applied for or opened several new accounts.
  • You now owe a lot more than you used to.

Now, if you do spend up to or near the limit and want to prevent a limit reduction, find out the closing date for your account, and pay the balance before that date. You don’t want your utiliza-tion ratio to be determined while you’re still carrying an overly large debt. This way your card’s charging limit should remain intact. If you wonder why was my credit line reduced call your bank and ask. This way you know what is going on with your credit and how you can make things bet-ter for the future.

About the Author

Erica Sandberg is a renowned personal finance editor, advice columnist, and reporter. She hosts her own video program, Making it with Erica, and is a frequent guest on national news shows, from Fox to CNN. Her book, Expecting Money: The Essential Financial Plan for New and Growing Families was the first to address the specific financial needs of new parents. Erica is the spokesperson for some of the finest businesses and products in the U.S., including Western Union, the Better Business Bureau, Bank of America, CVS Pharmacy, Michael Minna Restaurant Group, Bounty paper towels, Chase Card Services, and Assurant Solutions. Prior to her her current journalism career Erica was affiliated with Consumer Credit Counseling Service of San Francisco for ten years.

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