Effects Of Requesting Lower Credit Limits

Does Requesting a Lower Credit Limit Hurt My Credit Score?

Requesting a lower credit limit will reduce your amount of available credit, which may cause your credit utilization rate to increase and your credit score to decrease.

Lowering the credit limit on a credit card could hurt your credit scores if it raises your credit utilization rate. Your credit utilization rate measures how the amount of your available credit (your credit limits) compares with the balances on your revolving credit accounts (typically credit cards). It's an important scoring factor, and a lower utilization rate can generally help you improve your credit.

You may be able to offset the impact by using your credit card less often—or by paying down a card's balance before the end of its statement period.

How to Calculate Your Utilization Rate

You can calculate your credit utilization ratio by dividing your credit card's balance by its credit limit. Credit scoring models use the balance amounts that have been reported to the credit bureaus and added to your credit reports, which is where you should look as well.

The balance you see on your credit report may be different from your account's current balance because credit card companies often send updates to the credit bureaus monthly—around the end of your statement period. This is also why you can have a high utilization rate even if you pay your bill in full each month, and why paying down your balance early may help your credit scores.

Figuring out your credit utilization rate for one credit card is a simple task—just divide the card's balance by its credit limit and multiply by 100 to convert to a percent. If you have more than one credit card, you'll add up the balances and credit limits on all your cards to find your overall credit utilization rate.

For example, if you have two credit cards with $5,000 limits, you have a total credit limit of $10,000. If one card has a $5,000 balance on your credit report and the other has a $0 balance, your overall utilization rate is 50%—$5,000 divided by $10,000.

If the limit on a card is lowered by $2,500 but the balance stays the same, your credit utilization rate would increase to 67% ($5,000 divided by $7,500)—which would likely hurt your credit score. However, if the credit limit on one of your cards increases by $2,500 and the balance stays the same, your credit utilization rate would decrease to 40% ($5,000 divided by $12,500).

Credit utilization rates can change throughout the month as your cards' reported balances and limits are updated. Keeping it under 30% is often suggested as a rule of thumb, but a low utilization rate (under 10%) is best for your scores. It's important to keep your utilization rates low on each card as well as overall.

How to Decide Whether to Decrease Your Credit Card Limit

Lowering the limit on a credit card might also make sense if you want to open another credit card from the same card issuer. Sometimes, a card issuer might limit the total available credit they'll extend to an individual. You also might want to lower your credit card limit to reduce your temptation to spend more money.

No matter the reason, lowering your credit limit likely won't be a good move for your credit score. If you're going to apply for an important loan, such as an auto loan or mortgage, you might want to hold off in case lowering the limit negatively impacts your credit utilization rate and scores.

How Do I See What's Impacting My Scores?

If you want to learn more about how the different elements in your credit history are affecting your score, you can start by ordering your free credit score from Experian. When you get the score, it will include a list of the top risk factors that are currently impacting you the most. By focusing on improving those factors, you can begin to increase your credit scores.

In the meantime, some steps anyone can take to begin improving their scores include:

Bringing any past due accounts current: If you have any accounts that are currently past due, bringing them current and making sure all payments are made on time going forward is key to strengthening your scores.
Paying off collection accounts: If you have an outstanding collection account on your report, paying it off could improve your scores right away. That's because some scoring models exclude collection accounts from the score calculation once they are paid off.
Paying down credit card balances: Increasing your credit limit isn't the only way to improve your utilization rate. If you are carrying balances on your credit cards month to month, paying them down or off will lower your balance-to-limit ratio and also save you money on interest fees in the long run.

What could a lowered credit limit mean for you and your credit scores?

The practice of lowering credit limits mostly applies to revolving credit accounts, which allow you to repeatedly borrow money against a defined limit and pay it back, with interest, over time (usually month to month). Examples include credit cards, home equity lines of credit (HELOCs) and personal lines of credit.

Your current credit limit is set by your lender or creditor and is generally related to your credit standing and income. Borrowers with an established history of repaying debts are generally offered higher credit limits than those who have little to no credit history or have had trouble keeping up with debts in the past. However, regardless of your current standing, your lender or creditor can change your credit limit anytime, unless the two of you have agreed to a different arrangement.

How can you anticipate that your credit limit may be lowered?

There is currently no definitive way to know if your lender plans to lower your credit limit. In fact, consumers often don’t know their credit limit has changed until they get an alert from their lender or creditor. This is why it's especially important to be aware of the possibility that your credit limit may decrease and know what those changes may mean for your score.

What options do I have to lower my credit utilization rate after the credit limit on my credit card or HELOC has been changed?

Unexpectedly having your credit limit lowered can be a jarring experience, but fortunately, there are steps you can take to minimize the impact on your credit standing.

Reach out to your lender or creditor and ask them to reinstate your credit limit. Many borrowers these days are calling their lenders to request delayed or reduced payments. However, you may have more success by simply assuring your creditor or lender that you intend to continue making your payments — provided this is possible given your current state of employment — and explaining that an increased credit limit will help you mitigate the negative impact on your credit scores that comes with a higher debt-to-credit ratio.
Rely on other available credit. If your initial request to reinstate your credit limit is refused, you may try calling another lender or creditor with whom you already have an open line of credit. They may be more willing to increase your credit limit if you explain your situation and the reason you’ve asked for the increased limit.
Apply for a new line of credit elsewhere. If the above options fail, you may want to open a new line of credit with a lender or creditor with whom you have no previous relationship. Even if you don’t actively use this account, increasing your combined credit limit could have a positive impact on your debt-to-credit ratio. Be aware, however, that if you apply for a new line of credit and are turned down, the application will still generate the inquiry on your credit reports, which may impact your credit scores.

If your credit limit is lowered and none of the remedies above prove fruitful, try not to despair. As long as you continue to pay your bills on time, your credit scores will likely reflect your good borrowing habits. If you’ve recently experienced a job loss or other income reduction and are having trouble keeping up with your debts, reach out to your lender or creditor to discuss various repayment options — any sort of communication is better than none.

The Bottom Line

There are few situations where lowering the credit limit on one of your credit cards is a good idea. If a card issuer does lower your credit limit, you may be able to offset the potential negative impact on your credit scores by using the card less often or paying down its balance early.