How to get, use a low-limit card

By Dana Dratch

It sounds like the setup to an old joke:

What's the best way to get a low-limit credit card?

Start with a high-limit credit card.

In many cases, that's the most practical solution for people who want a card with a low credit line, either for themselves, new-to-credit teens, away-from-home college students or family caregivers.

How to get, use a low-limit card

How it works
Many issuers don't open a card account with a lower limit just because the applicant wants it, but once an account is open, many times issuers will reduce the credit limit at the customer's request.

Banks don't "generally allow customers to limit the line amount" while applying for a credit card, says Nessa Feddis, senior vice president for consumer protection and payment for the American Bankers Association. "They typically will give a limit based on the applicant's eligibility."

Want to see if the card you want is open to giving you a low limit? The first step is to check that application form.

"If someone has a specific need in mind, they should look for a way to express that on the application," says Paul Weston, president and CEO of TCM Bank N.A., the credit card division of the Independent Community Bankers of America.

Without that, "typically, underwriting will try to approve the largest line the customer will qualify for" in their credit class, he says.

So scan that form for a blank or check-box that would allow you to say how high or low you'd like that credit line to be, says Weston. With an existing account, "It's perfectly acceptable to contact the bank to make that change, if you want to," he says. 

Would asking for a credit-line cut make you a financial oddity? "It does happen," says Weston. "But I don't believe it's an everyday occurrence."

Another point to keep in mind: While cutting your credit line can be as simple as asking, raising it again later, if circumstances change, will require the issuer to pull your credit report (which can temporarily lower your score) and substantiate your income -- especially if it's been a year or more since you've opened the account, says Feddis.

"The bank cannot increase the line of credit unless it has an updated income report, which isn't available from credit reports," she says. "In other words, it is more difficult for them to increase the limit once the card is issued."

Another option: Community banks and credit unions
An independent bank, community bank or credit union might also be an option for a low-limit card.

At a community or independent bank, a low-limit credit card might not be common, "but it's certainly available," says Weston.

"Speaking for credit unions, I would say in most cases it's definitely an option," says Michelle Dosher, managing editor for the consumer education department of the Credit Union National Association.

Another alternative: At whatever institution you apply, opt for a plain-vanilla card that has no balance-transfer perks or big rewards, says Joe Ridout, consumer services manager with Consumer Action. Basic cards "will almost always come with a lower credit limit," he says.

Different cards, different policies
While many card companies and issuers will lower credit lines at the customer's request, they are not required to do that, says Ridout.

With all Capital One consumer cards, "a customer can request at any time to have their limit lowered," says spokeswoman Sukhi Sahni. "They need to call in the customer service number on the back of their card to make the request." 

At Chase, a customer can request a lower line any time, without providing a reason, and the company will review the request, says spokesman Rob Tacey. The company will lower the limit if you ask, he says. But if you have a specific number in mind for a new limit, that may require a review, he says.

Once the card member is approved and finds out their limit, they can lower it if they want to. They don't need to give us a reason for lowering their limit.

-- Jenna DiMaria
Spokeswoman, Discover card

With Discover, "Once the card member is approved and finds out their limit, they can lower it if they want to," says spokewsoman Jenna DiMaria. "They don't need to give us a reason for lowering their limit."

American Express offers another solution: a separate card on the same account with a lower limit, says spokesman William Tsang. This card option was designed with teens and college students in mind, but it's also an alternative for caregivers or other family members, he says. Account holders can monitor and set spending limits on the additional card, in real time.

Beware credit limit/account balance connection
Whether you're cutting an existing credit line or getting a new low-limit card, it pays to know that there's a strong connection between your credit line, the amount of credit you use each month and your credit scores.

The phrase you need to know: "credit utilization ratio." That's the amount of credit you use each month versus your total credit line. In the major credit scoring formulas, it accounts for about 30 percent of your scores. Scoring formulas look at your utilization ratio (both on individual cards and the total of all of your cards), and the scores drop if that ratio gets too high. The safe zone lies below 20 to 30 percent of your credit line, according to experts at FICO and VantageScore.

The question to ask yourself: If you get a low-limit card, can you keep that balance at 20 to 30 percent of the total credit line?

If you're cutting an existing credit line, "You don't want to lower your credit limit unless you're lowering the amount you carry on your card," says Ed Mierzwinski, consumer program director with the U.S. Public Interest Research Group.

That's a concern especially if you're new to credit or have just one or two cards in your wallet, says Ridout.

Slice your limit without cutting your spending and you could drastically reduce your score, he says. "If you want healthy credit scores, you probably need a credit limit that's several times what you'll actually use."

See related: Understanding credit limits and how they work, Forget the 30 percent credit utilization 'rule' -- it's a myth, Lower credit limit surprise nearly spoils a sale

Published: December 9, 2014

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