Will Your Credit Limit Be Cut?

When you're approved for a credit card, you get access to a line of credit. For example, you might be given a $500 line of credit, a $1,000 line of credit, or a $10,000 line of credit. The maximum amount you can charge on your card is called your credit limit. 

As a cardholder, you may come to rely on having your line of credit available. That's why it's important to ask yourself: Will your credit limit be cut?  

In most cases, the answer is no. Once you have access to credit, it'll be there when you need it. However, there are times when your credit limit does get decreased or reduced. This could happen if you take advantage of a debt relief program, for example, or if you aren't using your card very much.

No one can predict with 100% certainty if their credit limit will be cut. But certain things, such as being late with your bills or asking for credit card debt relief, could significantly increase your risk of a credit limit cut. You might have perfect financial credentials and follow all the best practices for using your credit cards, including not charging too much and paying on time, and your card company might still decide to reduce your spending limit.

Card companies will often send you a letter or alert you in advance if they plan to reduce your limit, but they don't necessarily have to do that. So ultimately, answering the question “Will your credit limit be cut” is hard.

While you can't necessarily stop your card issuer from reducing your limit, you can take steps to reduce the risk. This starts with understanding the most common reasons for a credit line to be reduced. 

Why Would Your Credit Card Company Reduce Your Limit? 

Card companies can reduce your limit for any reason. Here are some of the most likely factors that could result in a reduction.

Changes to your financial situation or card use

Will your credit limit be cut? The answer to this is much more likely to be yes if your credit card company notices certain changes in your financial situation, or in the way you use your card.

If your credit score declines, your income is reduced, or other creditors post negative information on your credit report, your card company may reduce your limit because they fear you're in over your head with debt. 

Likewise, if you're consistently late with payments, often max out your card or go over your spending limit, or give your card issuer other reasons for concern about your ability to make payments, they may respond by restricting your access to credit.

Inactivity on your account

Card companies don't want people who don't use their cards to have a lot of outstanding credit. As a result, if you have a card you rarely use, the company may reduce your limit, or even close your account.

If you want to make sure your account stays on your credit record to help your average age of credit or maintain your positive payment history, then use your card for at least small purchases on a regular basis. 

Internal risk assessments

Credit card companies sometimes re-evaluate their business to ensure they are exposed to the right level of risk. These internal audits can reveal red flags that prompt your card company to reduce your limit—even if you haven't done anything “wrong.”

Economic factors

If there are concerning economic conditions, card companies may reduce access to credit. For example, if there is a major recession or another event that rocks the global economy and creates more risk, your card company may cut credit limits for many customers. 

Participation in a debt relief program

If you participate in certain kinds of debt relief programs, such as a debt management plan, your card company may reduce the amount you can spend, or even close your account. This isn't necessarily a bad thing, because if you're undergoing credit card counseling or taking other steps to become debt-free, you may not want access to a lot of credit.   

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How Is Your Credit Affected if Your Credit Limit Is Cut? 

You don't just need to ask if your credit limit will be cut. You also need to ask how that could affect your credit score. Unfortunately, a reduction in your credit limit could hurt your credit utilization ratio, which is credit used versus credit available. It's an important factor in determining your credit score. 

Here’s how it works. If your credit card balances are high compared to your credit limits, your score could suffer. If you have a $500 balance and a $1,000 limit, that’s 50% utilization and you’ll probably lose a few points. If you have a $500 balance and a $10,000 limit, that’s a 5% utilization and it’ll probably have a positive impact on your score. 

If your card company reduces your limit from $1,000 to $500, your new utilization ratio is 100%. A maxed out card typically causes significant credit damage.  

Freedom Debt Relief isn't a Credit Repair Organization and doesn't provide, or offer, services or advice to repair, modify, or improve your credit.

What To Do If Your Credit Limit Gets Cut

You can do some things to protect your credit card limits. 

First and foremost, make sure you only charge things you absolutely need and, ideally, that you can pay back when your next statement comes. If you charge too much, you could hit your new credit limit quickly, and then no longer have a line of credit to use. 

You can also reach out to your credit card company to ask them why the limit was reduced. If they tell you what the problem is, you may be able to solve it and convince them to raise your limit again.

Depending on the reason your credit limit was reduced, you could also apply for a new credit card with a different card issuer. You'd likely only want to do this if your limit was cut for inactivity or for some other reason not related to your ability to pay your card balance. 

Note that opening a new card means an inquiry on your credit record and a lower average age of credit. Both could cause your credit score to take a hit. 

If you don't want to open a new card, consider asking a different creditor to increase your credit line on cards you have with them.

If you're carrying a balance on your card with the reduced limit, work on paying the money back as soon as possible—to reduce your credit utilization ratio, and to ensure you have access to credit if you need it. 

Protect Your Credit Score and Access to Credit

A reduction in your credit limit can make things tougher to manage, so you should try to avoid it if you can. Some things are out of your control, but you can show your card company you're a good customer, and reduce the chances of your limit being reduced if you take a few simple steps. 

These include:

• Paying your bills on time, all the time

• Not maxing out your credit cards

• Maintaining a stable income if possible

• Using your cards regularly, at least for small purchases.

If you do these things, there's still a chance your credit card limit could be cut because of factors unrelated to your financial habits. However, you can significantly reduce the chances of your card company suddenly deciding to restrict your spending if you make these moves.