Why No-Warning Credit Limit Cuts Happen and What You Can Do

Last year, Angie Sparks, a self-described travel hacker from Tampa, Florida, got some bad news related to her collection of credit cards: Capital One cut the credit lines on three of her cards, slashing her total credit limit with the issuer by one third. Capital One said in a letter to Sparks that this decision was based on low activity on her cards.

Sparks’ experience with an abrupt credit limit cut isn’t unusual. Credit card issuers have a great deal of latitude to reduce credit lines without users' consent. Credit limit decreases aren't reserved for people with high credit scores and plentiful credit lines. Those with low credit scores can be vulnerable, too.

And because your credit utilization ratio — the amount of credit you're using compared with your total available credit — makes up a large part of your credit score, a limit decrease can negatively affect people across the spectrum.

Here’s why a credit limit reduction could happen to you, some tips for avoiding a decrease and how you can dampen the damage if it does happen.

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Limits can be cut any time, even with good credit habits

If you're missing payment due dates or regularly carrying high balances, credit card issuers may suspect an inability to repay what you owe. By reducing credit limits, issuers lower their risk of losing money in the event that borrowers can’t repay their credit card balances. But even if you're using your cards responsibly by paying on time and in full, you can still be hit with a credit reduction.

As Sparks’ story illustrates, credit card accounts with limited activity are often targets of credit limit decreases. According to the Consumer Financial Protection Bureau, card issuers regularly monitor their consumers’ credit card usage. “If you had a card for years and use it very little, [the issuer] would rather reduce your line and give it to other people who use their cards more,” a CFPB representative says.

And an issuer's desire to reduce credit lines often ties into a larger macroeconomic landscape.

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Lower credit limits mean less risk for issuers

Credit line decreases are common when the economy is shaky, as banks look to limit outstanding risk.

Issuers cut consumer credit limits by more than $400 billion between June 2008 and January 2010, according to a 2022 report from the CFPB. NerdWallet’s 2021 Consumer Credit Card Report found that issuers responded similarly to the pandemic-induced economic slowdown in 2020 with 19% of cardholders reporting that their credit limits had been lowered.

A desire to manage credit risk can also come from the issuer's own balance sheet and internal processes, regardless of the broader economy.

Economic uncertainty in 2024 may fuel credit line caution

Some economists, like Matt Luzzetti, Deutsche Bank Research U.S. chief economist, are predicting a mild recession could hit the U.S. sometime in 2024, while others are hopeful that it can be avoided. “There’s a lot of uncertainty out there,” says the CFPB representative. “The job market is fine, but there are no guarantees in 2024.”

This mixed forecast may be enough to keep issuers still wary of outstanding credit risk, especially in light of the current landscape of the credit cards industry as a whole. Total credit card balances in the U.S. have risen to an all-time high of $1 trillion, and the delinquency rate (accounts that are behind on payments) has nearly doubled to 3% in the past two years. In its 2024 Trends & Predictions Report, the research firm Javelin Strategy & Research foresees an increase in “considerable credit risk” to card issuers due to more delinquencies and charge-offs.

How you can prevent a credit reduction

Individual consumers may not have any sway over issuers’ risk management strategies, but they can take actions to make them less likely targets of credit limit decreases.

• Use the card regularly, even if it’s just for a small purchase every month. Issuers tend to cut limits on cards that aren’t being used, and they may even cancel them. 

• Keep your utilization rate low. A large credit card balance, relative to the credit limit, can be a sign to issuers of declining financial health and thus lead to a credit limit decrease.

• Pay off balances on time and in full. As noted earlier, issuers use credit limit decreases as a tool to reduce their risk of losing money. Cardholders who regularly pay off their credit cards are less of a liability than a cardholder who defaults on their account. 

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Managing a credit limit cut

A credit limit decrease can present a major hardship for some consumers, but there are ways to mitigate the damage.

• Ask the issuer to raise or even reinstate the original credit limit. If you’ve been a loyal and responsible cardholder — you have a history of on-time payments, for example — mention that while making your case.

• Request a credit limit increase on other credit cards, if you have them. This strategy will likely be more effective if the other cards are from different issuers. It’s possible that, while one issuer is slashing credit limits, another issuer may not be.

• Apply for another credit card. Again, it’s probably best to look for a card from a different issuer than the one that cut your credit limit. Note that if you’re approved for a new card, the initial credit limit may be low for the same reason that issuers cut credit lines during economic downturns — they want to minimize risk — but even a small credit limit can provide relief. 

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