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What to Do If Your Credit Card Limit Is Cut

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Last updated on March 9, 2023 Comments: 3

The coronavirus has affected the lives of Canadians in many different ways, but one of the most unexpected negative affects of the pandemic just might be a decrease in your credit card limit.

Unfortunately, massive job losses, economic insecurity and a potential recession have even started to affected the bottom line of the country’s biggest banks. The credit card payment and mortgage deferrals that some banks have provided clients because of COVID have added further fiscal stress to Canada’s financial institutions. It’s no wonder banks have begun to take steps to protect their own financial health.

One of the steps some banks and other credit card providers are taking to safeguard their own financial security is to decrease clients’ credit card limits—sometimes without warning. Here’s what you need to know about how a credit card limit decrease can affect you and what you can do to protect yourself.

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How a Lower Limit Could Affect You

The good news is that if you’ve been making regular payments and have a stable credit score, you shouldn’t take it too personally if your credit limit is lowered. Credit card issuers may simply decide to reduce credit limits even for customers in good standing as a preventative safety measure due to something like COVID or a recession.

The bad news is that a reduced credit limit could affect your credit score. Thirty percent of your credit score is based on something called credit utilization. Credit utilization is the amount of available credit you’re using across all of your credit cards. Ideally, to maintain a good credit rating, you should keep your utilization ratio below 30%. Unfortunately, when the credit limit on one of your cards is reduced, it causes your ratio to rise.

For example, if you have a combined credit limit of $10,000 across your credit cards and an overall balance of $2,500, your ratio is 25%. If your credit limit is reduced significantly such that you now only have $5,000 in available credit, your $2,500 balance increases your ratio to 50%.

How much a credit limit decrease will affect your overall credit rating will depend on factors like how many cards you have, the length of your credit history and whether or not you make regular payments.

What You Can Do About a Reduced Limit

What You Can Do About a Reduced Limit

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Reach Out to Your Provider

The first thing you should do if your credit limit is decreased is to contact your credit card issuer. If you have a solid credit score, make regular payments, and have been a customer with your financial institution for a long time, there’s a chance your issuer may reverse their decision and reinstate your original limit or at least not cut it as much.

Increase Limits on Other Cards

If you have a good and/or long relationship with a different credit card provider, you could reach out and ask them to increase your credit limit. Though, given the economic uncertainty at the moment, it could be hard to get approval for an increase even if you’ve got a great credit score.

Apply for Other Cards

If you’re going through a rough patch and want the safety net of easily accessible credit, you could apply for another credit card. Keep in mind that, as with asking for a higher credit limit, it may be more difficult to get approved for a new credit card at the moment. Furthermore, applying for a new card could result in an inquiry on your credit report, which then may negatively impact your credit score. For this reason, it’s important to only apply for credit cards for which you have a good chance of getting approved.

If you know you’ll have to rely on your credit card to make ends meet, choose a low-interest card that will help ensure your debt doesn’t balloon out of control until you can pay it off fully.

Strengthen Your Credit Score

The higher your credit score, the better chance you’ll have of weathering a reduced credit limit. One way to rev-up your credit rating is through the responsible use of a credit card.

Another way to build your credit is to consider a credit building tool. KOHO’s Credit Builder costs $10 a month for a 6 month subscription ($7 for KOHO Essential or KOHO Extra) and can also help strengthen your credit score. Each month, KOHO uses pre-deposited dedicated funds as a “repayment” on a no-fee line of credit and then reports these payments to the credit bureaus. You can continue the subscription every 6 months, but you must have one of the KOHO Easy, KOHO Essential, or KOHO Extra account in order to access this tool.

Why Providers Decrease Limits

Just like many Canadians, banks are also being forced to tighten their belts to protect themselves from a financial fallout. When the economy takes a hit, banks and other credit card providers start to worry that clients will take on more credit card debt and won’t be able to make payments. To mitigate the risk of credit card debt defaults, providers will sometimes decrease credit limits to force cardholders to curb spending. (In fact, many financial institutions decreased cardholder credit limits during the financial crisis of 2009.)

Furthermore, credit card issuers can lower your limit without your permission and without warning—though they do need to notify you of the change within 30 days of having made the amendment. If you’re wondering what your credit limit is, you can contact your credit card provider or it should also be printed on your monthly statements.

At other times (i.e. outside of an economic crisis) credit card issuers may reduce credit limits because a cardholder has not been making regular balance payments or because their credit score has decreased significantly. Even when the economy is stable, credit card providers regularly monitor accounts to ensure minimum payments are being made. Issuers will decrease a person’s credit limit if there is a risk the customer could default on their payments. So, just keep in mind that your credit limit is never guaranteed.

Get Your Finances in Order

If a credit limit decrease is just one hit too many because you’re already struggling with credit card debt and a shaky credit score, it may be time to consider speaking to an expert about getting your finances in order. The Consolidated Credit Counselling Services of Canada has trained credit counsellors that can help you with debt consolidation and customize a debt management program that will put you on a path to true financial security.

Get Help with Your Credit Score with Consolidated Credit Counselling

Author Bio

Sandra MacGregor
Sandra MacGregor has been writing about finance and travel for nearly a decade. Her work has appeared in a variety of publications like the New York Times, the UK Telegraph, the Washington Post, and the Toronto Star. She spends her free time travelling, and has lived around the globe, including in Paris, South Korea and Cape Town. You can follow her on Twitter at @MacgregorWrites.

Article comments

Todd says:

AMEX just arbitrarily reduced my limit from $11,000 to $3280(!) even though I’ve always paid them and anyone else in full, on time. My debt has steadily decreased (almost by half) throughout the pandemic, my credit rating has steadily risen to around 800 and my spending has remained consistent over the last 5 years – no big spikes. I called them and was given no specific reason. What gives? This $8000 cut is going to significantly affect my utilization score. I’m tempted to simply close the account.

Daniel at GreedyRates says:

Hi Todd,
Sorry to hear about this unfortunate surprise. It sounds like your AMEX might not be the right fit for you any more. Luckily, your credit rating and payment history means that you have a good chance to qualify for premium cards that might be better suited to your needs. Looks like it might be time for a change.

Lem says:

Stay away from all MBNA cards. MBNA have a weird practice of reducing credit limits without any warning or reason even if you maintain stellar credit.