Reader Mail: My Credit Card Company Reduced My Credit Limit

I have been an active participant of the throwing money at your debt project, going from $8,696 in credit card debt in March, to an amazing current total of $3,732. This is extra amazing to me since all of these cards carry interest rates over 27 percent.

Now I have a question. I just noticed that the credit available on my three credit cards has been drastically reduced. For example, I used to have a $5,000 limit on one, and now it’s down to $1,800. It’s not a problem, since I am determined not to use these cards Ever Again, but it seems counterintuitive. I’m finally becoming responsible with the cards, and now the companies have decided lower my ability to borrow. What’s up with this? — M.

Listen, M., you’re doing great. You’re doing exactly what you should be doing by throwing as much money as you can at your debt that’s costing you 27 percent in interest every month. That’s a crazy amount of interest your credit card companies are charging you, and I’m looking forward to the day when I can mail you a note to congratulate you on paying off your credit card debt.

Don’t take the credit limit reduction personally, because it’s happening to a lot of people. I pride myself on being responsible with my credit cards and for having a credit score of 780, and I’ve had a credit card company close my account simply because I wasn’t using it. According to Bankrate, as many as one in five cardholders had their credit limits reduced by credit card companies, which were looking to reduce its overall amount of risk after the financial crisis.

For some people who have had problems controlling how much they spend on a credit card, a credit line reduction can be helpful, because it limits them from hitting a higher debt ceiling if they’re maxing out their cards.

But the credit reductions can also hurt credit cardholders by affecting their credit scores: Reducing your credit limit could increase your “debt to credit ratio,” which can lower your credit score, making it more difficult for you to take out a loan, or get favorable rates on loans, or if you’re refinancing. This may not matter to you if you’re not looking to borrow money any time soon.

One thing you can do is call your credit card company and ask if you can have your credit limit restored so that it doesn’t affect your credit score. Some credit card companies use computer programs to automatically reduce limits as they see fit, so a simple phone call can be all it takes to restore your limit. If you get a negative response, you can try asking for a manager, and explain your situation. You can read more about what you can do from this Bankrate article. Otherwise, keep with it, reduce your credit card debt, make all your payments on time, and your credit score should start ticking upwards again.

Congrats on tackling that debt. Do send me an email once it’s paid off. I’m looking forward to writing to you.

 

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Photo: OrphanJones

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13 Comments / Post A Comment

Megano! (#124)

They upped my credit limit once to $1000 and I was like, “YOU PUT THAT SUCKER BACK DOWN AND KEEP IT THERE OR I WILL EAT YOUR FAMILY” so they did

yankeepeach (#276)

I think cutting the credit limit of people aggressively paying down debt without incurring any additional debt is the credit card companies’ passive/aggressive way of telling you that you are no fun to party with anymore and while they don’t really want to break up, they just think they should start seeing other, more spendy debtors.

allreb (#502)

I got a similar slashing a few years ago, due to dumb behavior (paying late repeatedly due to never being able to find my checkbook). It sure as heck got me motivated to pay all my bills on time (yay automating things!) but it didn’t have a huge impact on my credit score. It definitely dipped, but it was from “very good” to “still pretty much okay” — I was freaking out about getting a credit check because I was hoping to find a new apartment soon when that happened, and I was still well above the threshold the apartment’s owners were looking for.

(I never did get the credit line re-increased, but I also have never had anywhere near the full $1800, either.)

jfruh (#161)

One of my credit cards (the “AT&T Universal Card” that I got specifically because it had calling card features, which became a lot less important to me roundabout 2003 or so when I got a cell phone) sent me a note two weeks ago telling me they were closing the card because I hadn’t used it in so long. I checked my Quicken and it turns out I hadn’t used it since 2008!

Then a week later they sent me a note telling me that I could boost my credit limit if i just called them to ask.

Will Murphy (#2,255)

Credit card companies will typically shake up your account after 6 months of inactivity. If you want to keep your credit cards (and good credit) I have heard that it is wise to use each of your cards once every six months for purchases you would make anyway, and pay off the debts right away. This continues “good” credit and keeps your cards active.

My credit score is almost/about as high as Mike Dang’s, which is weirdly confidence-boosting! Partly because I still don’t really understand credit scores and where mine should be (and which of the three Credit Karma shows me I should be most concerned about)…

kellyography (#250)

@Saralyn@twitter Question! How do you find out your credit score? Because I get my free credit reports (not from that place with the jingles), but have never been able to find out how to get a credit score (at least for free).

@kellyography I use CreditKarma.com and (so far) have liked it pretty well. Again, I’ve really only been monitoring since April or so and don’t understand a ton about it, but it’s fairly simple and seems like a good tool to me. My biggest beef with it is the “we’ve calculated you can save money by [x]” ads/partnerships that it (and other free sites like Mint.com) have to have in order to break even. But it gives you three different credit scores, some information on hard inquiries and so on, and even has a little “simulator” where you can see how certain scenarios might affect your score.

Sorbee (#2,256)

Good answer, but isn’t the 27% the A(for annual)PR, and not a monthly rate?

aetataureate (#1,310)

M.! You’re a superstar! That is some fine-ass debt-reduction progress.

@aetataureate Seriously, way to go, M.

osby (#1,311)

@aetataureate Thank you! It has not been easy, but it has been worth it.

osby (#1,311)

This is M, who wrote the email. Thanks so much, Mike, for your quick post! I am not much of an active participant on this forum when it comes to posting, but this blog has been super inspirational in helping get all my financial ducks properly aligned. I appreciate the support and I really look forward to my congrats email from Mike when I finally hit zero!

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