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الثلاثاء، 20 فبراير 2018

My Credit Card Issuer Lowered My Credit Limit – Why?

It may come as a surprise, but credit card issuers have the flexibility to modify the terms of your account after it’s been opened. While that fact may be understandably unsettling, there’s not much you can do about it. And one of the most common ways a card issuer will change the terms of your account is by lowering your credit limit.

Your Credit Card Issuer Is Watching You

The Fair Credit Reporting Act defines who can request your credit information from a credit reporting agency. You know lenders are going to request your credit information whenever you apply for new financing. What might be news to you, however, is that your current creditors are allowed to continue checking your credit long after your account has been opened.

Most credit card issuers will perform an “account maintenance” check of your credit report and score from time to time, perhaps even monthly. Since a credit card issuer is essentially loaning you money over and over again, they need to be sure that your level of credit risk remains the same.

If the condition of your credit worsens, then they may no longer want to continue doing business with you or they may, at the very least, decide to adjust the terms of your account more in their favor.

Reasons Your Credit Limit Might Be Lowered

In most cases, a credit limit reduction is a putative measure imposed upon you by your credit card issuer. In other words, you have done something which has increased your risk in the eyes of your lender and has caused the lender to react.

You might still have flawless payment history on that specific account, but if you have new derogatory information appear elsewhere on your credit report (e.g., a late payment on a different bill, a new collection account), then your card issuer may feel the need to take action in order to mitigate their risk.

A card issuer may take a variety of “adverse actions” if changes in your credit report or score become a cause for concern. These adverse actions may include:

  • Lowering your credit limit
  • Increasing your interest rate
  • Suspending your account
  • Closing your account

Sometimes your credit limit might be lowered simply because you haven’t been utilizing your account enough or because your account usage patterns have changed. Your level of credit risk might be the same, but the card issuer may opt to lower your limit anyway. It’s annoying, but it’s ultimately their prerogative — as you’re borrowing their money.

How a Credit Limit Reduction May Impact Your Credit Scores

Your credit card accounts can certainly have an impact on your credit scores, especially if your balance consumes too much of your credit limits. Because your credit utilization ratio — the percent of your available credit limit you’ve used up – comprises a big portion of your credit score, lowering your credit limit can

For example, if you have a $500 balance on a credit card with a $5,000 credit limit, your utilization ratio is a healthy 10%. If your credit card issuer suddenly slashes your credit limit to $1,000, however, and you still have a $500 balance, your utilization shoots up to 50% — and that would immediately hurt your credit scores.

The best habit when it comes to credit card accounts is to pay them in full each month. To take this habit one step further, you might consider paying off your credit card balances a day or two before the statement closing date – this way, those accounts will always show a $0 balance on your credit reports.

If you maintain $0 credit card balances on your credit reports, then no credit limit reduction is going to harm your credit scores, because you’re still using 0% of your available credit.

Can I Prevent My Card Issuer From Accessing My Credit Reports?

In short, no. The Fair Credit Reporting Act allows a creditor to review your account, and there is no language in the FCRA giving you the right to restrict them from doing so. In fact, if you read the language in your cardholder agreement you’ll see that you’ve affirmatively given them permission to access your credit reports and/or credit scores.

But at least you can take solace knowing that, when an existing creditor accesses your credit reports for account management purposes, that credit inquiry won’t have any adverse impact on your credit scores.

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John Ulzheimer is an expert on credit reporting, credit scoring, and identity theft. He has written four books on the topic and has been interviewed and quoted thousands of times over the past 10 years. With time spent at Equifax and FICO, Ulzheimer is the only credit expert who actually comes from the credit industry. He has been an expert witness in over 230 credit related lawsuits and has been qualified to testify in both federal and state courts on the topic of consumer credit.

The post My Credit Card Issuer Lowered My Credit Limit – Why? appeared first on The Simple Dollar.



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