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Getting a credit card may not be a difficult task, but managing it in a responsible way is sometimes challenging for people. There are lots of points that one needs to keep in mind while using credit cards. Otherwise, they might fall into a debt trap or their credit score may fall down. Credit Cards do provide you with financial freedom as you can use the credit to make purchases for which you don’t have sufficient money right now. However, you need to repay it later. Generally, the credit limit increases as you keep using a best credit card for long time. But, sometimes trend goes in the opposite direction, i.e, the credit limit may decrease with time. It never happens without reason. Card issuers generally keep increasing your credit limit, but if it is going down, you need to worry. It is because you are definitely lacking somewhere in using your credit card properly.
Possible Reasons For Reduction In Your Credit Limit
If your credit limit has been reduced and you are unable to understand why it migt have happened, the following points will help you understand the same:
Payment Defaults
If you have delayed or missed your credit card payments several times, your card issuer will consider you a risky borrower. As a result, your credit limit might get reduced. It generally doesn’t happen if you have delayed your credit card payment only once or twice, but if you are doing it regularly then there are high chances that your credit limit will be decreased and the card issuer can even close your card. This is why timely payments become one of the most things to keep in mind while using a credit card. You should not only pay your credit card bills on time but also make the full bill payment every time.
Exhausting the Entire Credit Limit
If you use 100% of your credit limit or you spend beyond your limit very often, you are not at all representing a good credit card usage. In order to maintain a good credit and become creditworthy, you are advised not to exceed 30% of your total credit limit. However, here the total credit limit refers to the limit of all your credit cards together and not the limit of a single card. The ratio of your used credit limit with your total available credit is called the credit utlization ratio and it is important to maintain a utlization ratio of 30% or less to avoid any negative impact on your credit. This will also help you improve your credit limit instead of getting it decreased.
Irregular Use Of Credit Card
If you are using your credit card irregularly or you are not using it at all, your credit card issuer may decrease your credit limit. Not using your credit card constantly for over six months may even result in the cancellation of your credit card. So, if you are having multiple credit cards and you have stopped using any of those cards, you are probably not doing the right thing. Even if a credit card is not of much use, you should use it at least once every month so that your card issuer doesn’t reduce your credit limit due to the irregular use of the credit card. This will reduce your total credit limit and as a result, your credit utilization ratio may get affected.
Decreasing Credit Score
If your credit score is continuously decreasing, your card issuer may consider you as a payment defaulter or as someone who is very much in need of credit. This can also result in a decrease in your credit limit. Credit Score is determined on the basis of various factors, including your payment behavior, credit utlization ratio, average age of accounts, credit mix, and number of hard inquiries on your credit profile. You should keep all these factors in mind and try to maintain a good credit score so taht your credit limit doesn’t get reduced, but it only increases with time.
Bottom Line
Your card issuer will never reduce your credit limit without any reason and hence, if your credit limit has come down, you should try to find out the reason behind it. You might have made some mistakes while using your credit card. In order to get a high credit limit back, you should identify these mistakes and work on them. As long as you use your credit card in a responsible manner, your credit limut will only improve with time. Just make sure that you pay your credit card bills on time and keep all other important factors like credit utilization in mind. If you have any further doubts in mind, make sure to let us know in the comment section below!
