Aline Quint splits her time between Falls Church, Virginia and Sarasota, Florida. She just started a renovation project on her condo in Florida and was planning to pay for much of it with her credit card so she could earn points for a future vacation. But she recently received a letter in the mail from her credit card company alerting her that her credit limit was being cut from $20,000 to $10,000.
“It was a complete shock and it did not come at a good time,” Quint said. “I had a credit card with them for 19 years so I was not a newcomer by any means.”
According to creditcards.com, cutting credit limits is a common tactic during recessions.
“Credit card companies get nervous and worry about unemployment going up and people not paying them back,” Ted Rossman of creditcards.com said.
When a credit card company lowers a limit, it’s usually either because the customer isn’t using the card enough or because they are in financial distress and maxing it out.
“I would say the best thing you can do is if you are in trouble is to speak up right away,” Rossman said. “Let the company know, get into that hardship program.”
In Aline’s case, she was using the card regularly but assumes she had too much unused credit for the bank’s liking. And when her limit was cut, her credit score took a hit.
That’s because one of the biggest factors in determining your credit score is the ratio of available credit to used credit. So when your credit limit is reduced, it impacts that ratio.
Here are 4 things you can do if your credit limit is reduced:
- Ask the bank to reverse it. It may not work, but it’s worth a try.
- Ask another card company to raise your limit. This could help keep your credit score intact.
- Use your cards regularly, but pay off the balances each month. Dormant cards tend to get targeted more often.
- Avoid late or missed payments.
Creditcards.com says this is a perfect example of why you shouldn’t depend on a credit card as an emergency fund. If your limit gets cut, you no longer have access to that money.