» What to do if Your Credit Limit is Reduced
If you’re unfortunate enough to have had the credit limit on your credit card reduced without warning, you might be wondering how it will affect you and what on earth you can do about it. In these financially volatile times, a change like this can be worrisome. Perhaps the worst part of all is that a sudden credit limit drop can significantly affect your credit rating and thereby cause you all sorts of grief, both now and in the future.
Here’s how a credit limit reduction can impact your credit rating. Say you have a $900 credit card debt and a $10,000 credit limit. Because you’re only at 9% of your credit limit, your credit rating, if anything, will be boosted, as long as you keep on top of your repayments. You’ve got plenty of breathing space. Even at 30%, your credit limit shouldn’t be negatively affected. But if the credit limit is reduced to $1,100, you’re suddenly at nearly 90% of your credit limit. If you don’t get that debt down fast your credit score will start to make its way down the gurgler. This will impact on your ability to apply for credit cards and loans in the future. It could even affect your ability to get a rental property as many landlords run credit checks before handing the keys over. No-one will be giving cards or loans or housing to someone with a dodgy financial record. So you want to get this sorted!
What can you do? As unfair as it all seems, it comes down to you taking some smart and prompt actions to protect yourself and your credit rating. These include:
The first thing you want to do it if your credit limit has been cut, especially if the cut is putting you very near your limit, is act fast to make sure you keep well away from your limit. Cancel any auto payments that could take you close or over your limit and pay down as much of the debt as you can. It may be easier said than done but you want to do anything in your power to not let things get any worse. If you go over your limit you will be giving the credit card company a legal and legitimate reason to raise your interest rate. This will only make the downward spiral worse so whatever happens, don’t go over your limit!
Thankfully it will take a number of weeks for changes by your credit card to hit your credit report. Applying for a new card will increase your chances of getting your card approved before your credit score decreases. If you can get approved for a card with a high credit limit, this will give you access to credit. You can then transfer some balance from the old card to the new, again, keeping you away from your newly reduced limit and protecting your score. Having a new card that you keep on top of can also help your credit score. This is a smart move as your utilization ratio is now much lower now that you’ll have access to more credit, but using a lower percentage of the overall amount available.
Always check your statements and pay off as much of the balance as you can each month, promptly! Don’t get into the habit of just paying back the minimum monthly payments, unless you like the thought of being in debt indefinitely. Additionally, check your rating and work hard to keep it as near to perfect as you can.
Unfortunately, as consumers we are now at the mercy of increasingly desperate banks who are struggling, with the rest of us, in these desperate times. As a result it’s wise to plan for the worst and stay out of debt as much as possible. Keeping on top of your credit card accounts, paying down debt, and carefully defending your credit score are not luxuries, but necessities today. A credit limit cut in times like these is the last thing most of us want or need but smart, decisive action can help you avert the worse. Your credit rating is in your hands!