What to Do If Your Credit Card Limit Goes Down
The COVID-19 outbreak has had a devastating impact on the U.S. economy. While employers added a promising number of new jobs in the past month , the unemployment rate is still in double digits. Despite the fact that Congress passed three economic stimulus packages totaling almost $ 3 trillion, many people still do not pass by.
In response to the pandemic, some banks have lowered their risk by tightening lending standards or cutting consumer lending. According to a recent report by CompareCards , 50 million credit card holders have had their credit limits lowered and some have had their cards completely closed.
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Lower credit card limits or closed cards are more than an inconvenience. These measures can reduce the use of credit, which affects 30% of your credit rating – the second most important factor in the assessment.
Credit usage is your percentage of used credit on all cards. For example, if your available credit limit is $ 10,000 and your total balance is $ 2,000, your loan utilization is 20%. According to Experian, you should try to keep your loan utilization below 30%, but even better if the percentage is lower.
How to avoid (or how to cope) with a decrease in your credit limit
One of the easiest ways to avoid unexpected cuts or closings is to keep your cards active. Inactive or infrequently used cards will suffer the most, according to CompareCards. This is because banks make money from commissions and interest. If you don’t use a credit card, the bank is less likely to make money – and it may choose to minimize its risk.
If you are faced with limit cuts, card closings, or want to avoid any of these scenarios, the CompareCards report recommends the following tactics:
- Ask your credit card company to reverse their decision.
- Keep all your credit cards in rotation.
- Schedule small, recurring payments to inactive cards.
- Apply for a different credit card to increase your total limit.
During a financial crisis, it is easy to focus on falling your credit rating. But it’s more important to take care of the basics – like paying rent, utilities, food, and transportation. If you are struggling to make ends meet , you may be able to get help from your creditors . Once your situation changes, you can improve your credit score again.