Credit card companies are getting aggressive about reducing credit card balance limits. But consumers don’t have to take limit reductions lying down.
At least, they shouldn’t. According to FICO (Stock Symbol: FICO), U.S. credit card companies cut the credit limits on 58 million Americans – about one-third of all credit card consumers, the company reports. Having your credit limit cuts can bruise your credit score. Your credit utilization rate – the percentage of your available balance measured against your credit limit – is a big factor that FICO relies on in figuring out your credit rating.
If you’re one of the 58 million who saw their credit card limit axed, fear not – you can take these steps to restore your limit and take control over your credit card situation.
First, a warning. A higher credit limit means more opportunities to make purchases – and potentially damage your credit rating. So when you amp up your credit limit, don’t use that as an excuse to pump up the volume on your spending, too.
Pay more than the minimum. Credit card companies love to use “red flags”, i.e. criteria to see if you’re a good credit risk or not. One big red flag is if you only make the minimum payment on your monthly credit card bill. That shows you might be in dire financial straits and thus makes you a candidate for a credit limit cut. Improve the odds by paying more than the limit – it shows credit card firms that you know how to manage your personal finances.
Pay on time. Sure, it seems obvious, but your quickest path to the credit card limit axe is to pay late on your credit card bill. It’s a five-alarm sign that you’re experiencing a financial crisis. Fair or unfair, all it takes is one late payment to plant that seed – and start the process of slashing your card limit. Whatever you do, pay your bill on time. A tip: ask your credit card company to send you an e-mail “alert” each month as a payment reminder. Or, sign up online for automatic payment deductions from your bank account. When you do, ask your card carrier to cut your interest rate – they might go along if you agree to automatic payments.
Go ahead and ask. Some credit card companies have a no-migraine path to a higher credit limits – go online and ask for an automatic credit limit increase. Such requests shouldn’t trigger a hard credit inquiry, but be careful. Any request for salary figures or bank account balances will lead to one – so stop the train and get off if your card carrier asks these questions.
Ultimately, the quantity of your card limit relies on the quality of your credit reputation. So use the card, pay on time, don’t go over your credit limits and ask your card carrier to reward you for your good behavior.