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A lowered credit limit can have a negative impact on your credit utilization ratio, which accounts for 30% of your credit score.
Credit card companies may lower credit limits if you haven’t used your card for a while, or if your credit score suddenly drops.
To avoid having any of your credit card limits lowered, make occasional purchases with all of your cards for the sake of account activity.
See Business Insider’s list of the best rewards credit cards.
Disclaimer: Amex is an Insider advertiser.
When I opened a letter from American Express dated February 15, 2020, I definitely didn’t expect to see that the credit limit on my Amex EveryDay® Credit Card from American Express was cut, but that’s exactly what happened.
I have an excellent credit score (836 according to TransUnion’s model, and 818 according to Equifax), but I quickly realized why this happened: I hadn’t used that card in quite a while.
Why credit card companies lower credit limits
When you apply for a credit card, the credit card issuer looks at your credit and the ability to pay back any outstanding balance. Sometimes the decision is made by a computer in the blink of an eye. If you’re approved, based on your income and credit history, the credit card company sets your credit limit.
I have four cards from American Express but only use one of them regularly, my American Express® Gold Card, which has no preset spending limit. Using the “check your spending power” tool, I quickly found I can borrow at least $50,000 with that card. Keep in mind, no preset spending limit means your spending limit is flexible. Unlike a traditional card with a set limit, the amount you can spend adapts based on factors such as your purchase, payment, and credit history.
My less-active American Express cards are older cards that I downgraded to in order to stop paying annual fees for cards I no longer wanted. My Blue Sky card has an $8,100 credit limit and my old Blue® from American Express card has a $8,300 limit. My Amex EveryDay® Credit Card …read more
Source:: Business Insider