At O1ne Mortgage, we prioritize your financial well-being and aim to provide you with the best mortgage services. If you have any mortgage service needs, feel free to call us at 213-732-3074. In this article, we will explore why credit card issuers might lower your credit limit, how it can affect your credit score, and what you can do to mitigate the impact.

Why a Credit Card Issuer Might Lower Your Credit Limit

Credit card issuers are always looking to minimize risk. If they see changes in a consumer’s financial behavior or general shifts in the economy, they may review accounts to see if credit limits should be reduced. Here are some common reasons why your credit card issuer might lower your credit limit:

• You are maxed out or overextended (or have frequent late payments).
• Your account is inactive or rarely used.
• The economy is in turmoil.
• The card issuer needs to adjust its lending portfolio.
• The issuer detected a change in buying behavior.

What to Do if Your Credit Limit Is Reduced

If you’ve been notified that your credit limit is being reduced and you want a better understanding of why—and your previous limit restored—you can do the following:

• Reach out to the card issuer: This can help you understand why they reduced your limit. Particularly if you are paying in full and on time every month, you may be able to get your old limit restored.
• Use the card more often: If the reason for the credit limit reduction is because you seldom use the card, you could consider using it more often. Using the card for small purchases and then immediately paying off your balance could help you maintain the higher limit—and potentially help you earn rewards such as cash back, depending on the card.
• Go elsewhere: If your credit is good, you can ask other credit card issuers about increasing your credit limit. You can also consider applying for a new credit card.

If you can’t get your old limit restored or existing limits raised, take a look at how you can restructure any balances you are carrying on cards to reduce the impact on your credit. Aim to use no more than 30%—and less is better—of your credit limit on any card to avoid hurting your credit score.

How Can a Reduced Credit Limit Affect Your Credit?

A lower credit limit could potentially affect your credit score, even if you pay on time, every time. That’s because your credit utilization rate, the percentage of your available credit that is in use, has a significant impact on your credit scores. Keeping your credit utilization under 30% will reduce its impact on your credit score, and under 10% is better.

Here’s how an unexpectedly reduced credit limit could play out in real life:

You have a lightly used credit card with a credit limit of $20,000 that you pay off monthly. You also have a second credit card that has a $15,000 limit and a balance of $10,000. Your credit utilization rate is 0% on the first credit card and 67% on the other—and the overall utilization is 29%. If your credit card issuer lowers the credit limit of the first credit card to $12,000, you now have an overall credit limit of $27,000, and that $10,000 balance gives you an overall credit utilization of 37%. In this case, your credit score could take a hit even if you have been paying responsibly.

The Bottom Line

Having relatively high credit limits, with plenty of room on them, can help you maintain a good credit score. While credit limits can be lowered for reasons outside your influence, such as business goals or economic conditions, paying on time and keeping your card at least minimally active can help avoid it. If your credit limit is being lowered, you can consider applying for a new card or requesting higher limits on other cards to maintain a similar overall credit limit and protect your credit score.

At O1ne Mortgage, we understand the importance of maintaining a good credit score, especially when it comes to securing a mortgage. If you have any questions or need assistance with your mortgage needs, don’t hesitate to call us at 213-732-3074. Our team of experts is here to help you navigate the complexities of the mortgage process and find the best solutions for your financial situation.