4 Reasons Why Creditors May Reduce Your Credit Limit

If credit card companies experience a high number of defaulted credit cards, they adjust credit limit guidelines to be more conservative. When they do an “Account Review” (check your credit), they use a “Usage Score” formula to assess your risk level and may adjust your limit.

If you have several new accounts or lots of credit inquiries, this could be an indication that your expenses are more than your income (living beyond your means). In the mind of the creditor, the amount of your new debt, monthly payments, and risk level are trending in the wrong direction.

When the balances on your credit cards are more than 50% of your credit limit, this indicates that you may be over-your-head in debt. Even with perfect credit history, this is often a main contributing reason why a creditor may reduce your credit limit.

This should be obvious. If you don’t pay on time, you’re a high risk. Even if you’re late on non-credit card accounts, it makes credit card companies nervous. Simply having a late payment doesn’t usually result in reduced limits, but credit card companies don’t like repeated offenses, and sometimes they’ll even close your account.