lifeinmycubicle

You may have received a mail from your Credit Card Issuer that your credit limit has been reduced. There are a few reasons why your credit limit has been lowered. It could be caused by late or missed payments, going over your credit limit, a sudden drop in your credit score and high outstanding balance. Another common reason is due to a change in financial situation. You may have filed bankruptcy or due to short sale or foreclosure. Lending standards have tightened and Credit Card Issuers are taking a closer look at their clients’ creditworthiness. They are looking at their clients’ jobs, if they are or will be affected by the weak economy and where they live. If Credit Card Issuers see reasons that you may potentially default, they will lower your credit limit to protect them and you as well. Here are a few tips on how to protect your credit card limit from being reduced.

1.  Make sure you read your monthly statements. Do not only check the balance portion and account activities. Check if there is a letter enclosed or a notice added to the regular monthly statement.  Credit Card Issuers notify you via mail that your credit limit has been reduced. It is important that you are aware of this change to avoid an overcharge.

2. Always pay on time. Remember that timely payments account for 35% of your FICO score. All you need to do is show that you are responsible. You do not need to pay lots of money each month. If you don’t have extra money to add to the minimum payment, it’s okay to pay just the minimum balance. Just make sure you always pay on time.

3.  Manage your debt-to-credit-limit ratio which accounts for 30% of your FICO score. For example you have 2 credit cards. On credit card A, you owe $3,000 and credit card B, you owe $5,000. Your total debt is $8,000. Your credit limit on credit card A is $7,000 and the limit on credit card B is $9,000. Your total credit limit is $16,000. What does this mean? The total of what you owe which is $8,000 is 50% of your total credit limit which is $16,000. You have 50% debt-to-credit-limit ratio. It is recommended not to use more than 50% of your credit limit. Remember, the lower the ratio, the better.

4. Pay more than the minimum requirement so you can pay off your debt quickly.

5. Don’t apply for a lot of credit cards all at once. Credit Card Issuers will consider you as “Risk”. Multiple credit inquiries in one month will also bring down your FICO score. Also, have a good mix of credit cards, retail cards, loans where you make timely monthly payments. Combining these two (new credit activity and mix of credit cards) accounts for 20% of your FICO score.