High Credit Limit Reduced?

We are already used to the fact that credit card issuers apply stricter standards to credit card loans and new applicants have to comply with that. But today we hear stories about credit card issuers considerably reducing credit limits on existing accounts, especially after one makes a large payment towards the outstanding balance. It has been acknowledged that “there’s too much easy credit” available and banks are concerned that cardholders have access to spending limits they are not able to repay and as a result tighten lending rules.

Credit limit reduction has been observed almost throughout the entire credit card industry. While some are seeking ways to increase their credit limit, others (those with good credit history are not exempt) who have been on a watch list, can experience a cut in the spending limit they had. Banks say they periodically review accounts and can cut credit lines of those they view as potential risk. They pay attention to things like late payments on your other credit cards, high credit utilization, a sudden increase in your balance, etc. Yet they do not mention how a substantial payment can affect credit limits.

You would think that to have a low balance is a good thing, and that it proves you are a trustworthy payer and are responsible with your finances. And when the bank reduces your limit to leave you with only a few hundred dollar margin, you feel treated unfairly. It decreases your spending abilities and in case of an emergency (say, an unexpected medical bill, or a job loss) you are considerably limited. In addition, this sudden drop in your spending limit can tell negatively on your credit score. A considerable part of your credit score is made up of how much of the extended credit you actually use. With the dramatic change in your limit you can go from using say 40% of your credit line to 80-90%, and this unexpected drop in the credit limit is going to affect your score immediately.

While credit card companies are trying to avoid cutting limits below the existing balance, yet, you need to carefully review all information you receive from your bank so that you do not exceed your limit. If your credit has been cut, one of the things you can do is shop around for a new credit card with higher limit. If it is something you plan on doing, you can compare best credit cards with high limit for customers with good score on our site.