Reader Mail: My Credit Card Company Reduced My Credit Limit

I have been an active participant of the throwing money at your debt project, going from $8,696 in credit card debt in March, to an amazing current total of $3,732. This is extra amazing to me since all of these cards carry interest rates over 27 percent.

Now I have a question. I just noticed that the credit available on my three credit cards has been drastically reduced. For example, I used to have a $5,000 limit on one, and now it’s down to $1,800. It’s not a problem, since I am determined not to use these cards Ever Again, but it seems counterintuitive. I’m finally becoming responsible with the cards, and now the companies have decided lower my ability to borrow. What’s up with this? — M.

Listen, M., you’re doing great. You’re doing exactly what you should be doing by throwing as much money as you can at your debt that’s costing you 27 percent in interest every month. That’s a crazy amount of interest your credit card companies are charging you, and I’m looking forward to the day when I can mail you a note to congratulate you on paying off your credit card debt.

Don’t take the credit limit reduction personally, because it’s happening to a lot of people. I pride myself on being responsible with my credit cards and for having a credit score of 780, and I’ve had a credit card company close my account simply because I wasn’t using it. According to Bankrate, as many as one in five cardholders had their credit limits reduced by credit card companies, which were looking to reduce its overall amount of risk after the financial crisis.

For some people who have had problems controlling how much they spend on a credit card, a credit line reduction can be helpful, because it limits them from hitting a higher debt ceiling if they’re maxing out their cards.

But the credit reductions can also hurt credit cardholders by affecting their credit scores: Reducing your credit limit could increase your “debt to credit ratio,” which can lower your credit score, making it more difficult for you to take out a loan, or get favorable rates on loans, or if you’re refinancing. This may not matter to you if you’re not looking to borrow money any time soon.

One thing you can do is call your credit card company and ask if you can have your credit limit restored so that it doesn’t affect your credit score. Some credit card companies use computer programs to automatically reduce limits as they see fit, so a simple phone call can be all it takes to restore your limit. If you get a negative response, you can try asking for a manager, and explain your situation. You can read more about what you can do from this Bankrate article. Otherwise, keep with it, reduce your credit card debt, make all your payments on time, and your credit score should start ticking upwards again.

Congrats on tackling that debt. Do send me an email once it’s paid off. I’m looking forward to writing to you.

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Photo: OrphanJones

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