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My credit limit was (almost) cut without warning

The spike in unemployment has moved issuers to take defensive actions, including cutting credit limits. Here's how I was able to reverse a credit limit cut

Summary

Chase wanted to reduce the credit limit on my Chase Freedom account. Fortunately, I was able to reverse their decision. This is what I did and why it’s important to keep the credit limits on your card accounts as high as possible.

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Earlier this week, Chase sent me a letter which read in part:

“In reviewing your credit card account, we saw you spent far below your available credit limit in the last 12 months. Because of your limited usage, we’re lowering your limit to $6,200 30 days from the date of this letter.” That’s less than half of the previous limit on my Chase Freedom card* ($12,500).

To my surprise, I was able to get the decision reversed simply by calling customer service and asking politely. It took less than a minute. It didn’t even require a hard credit check. This is a good tip if you receive a similar notification, although it won’t always work.

See related: Filing credit card disputes in the coronavirus crisis

Cutting credit limits a common tactic during recessions

When unemployment spikes, issuers get especially worried consumers won’t pay them back, so they take defensive actions like cutting credit limits. In 2008, amid the financial crisis, the Federal Reserve said 20% of U.S. banks cut limits on prime borrowers and 60% did so on subprime customers. Card issuers have a ton of latitude to adjust your credit limit at their discretion, and they can even cancel your card entirely if they wish.

What surprised me about my limit being cut is that I don’t fit the typical profile. When a card company lowers a limit, it’s usually either because the card was dormant (not making them any money but representing a liability) or because the cardholder was in financial distress (perhaps maxing out the existing limit or paying late). I use my Freedom card several times per month, although I guess I’m not using it enough for Chase’s liking.

My initial reaction was to be offended. Did they really think I wouldn’t pay them back? I have a top-tier credit score (829), and I’m blessed with a good, steady job. I’ve had this card for eight years and have paid on time every single month.

Last month was my highest spending month on that card this year. Still, I used less than 10% of my available credit ($1,206 out of $12,500). In the first four billing cycles of 2020, my average monthly spending on my Freedom card was just $378. In 2019, it averaged $499 per month. The more I think about it, I can see why Chase lowered my credit limit, although it still didn’t feel good.

I’ve been bracing for a letter like this from a different card issuer. My wife and I have separate Capital One® Quicksilver® Cash Rewards Credit Card* accounts that we opened as teenagers. For both of us, this is our oldest credit account, which makes it especially important to our credit scores. We’ve mostly moved on to other, more lucrative rewards cards, although we try to use our Quicksilver cards at least every few months to demonstrate some activity and hopefully keep them active. We use these cards a lot less than the Freedom card, so I’m surprised to have drawn Chase’s scrutiny rather than Capital One’s.

See related: How I’m spending differently during the pandemic

In more normal times, it’s easy to get your credit limit raised

Last September, I asked three of my credit card issuers for higher credit limits and was successful in all three cases (American Express gave me a 100% increase, Wells Fargo gave me 76% more credit and Capital One upped my limit by 30%). A 2018 CreditCards.com survey found 85% of cardholders who asked for a higher limit got one.

I didn’t ask Chase last fall because they would have placed a hard inquiry on my credit report, which would have (slightly) lowered my credit score for a bit. The other issuers only performed soft credit checks. Ironically, Chase raised my credit limit – unsolicited – from $6,000 to $9,000 in 2013 and from $9,000 to $12,500 in 2014. And they didn’t require a hard inquiry when I recently appealed for the limit cut to be reversed.

Why do credit limit decreases matter? 

If you’re relying on the card to make ends meet, your credit limit really matters. For others, a higher limit is a nice thing to have because it can help your credit score.

“How much you owe” is the second-most important factor in the FICO credit scoring formula. It makes up 30% of the total, and your credit utilization ratio is a key component. That’s how much credit you’re using divided by your credit limit. It’s often recommended to keep your utilization below 30%, and below 10% yields the best results.

See related: What is a good credit utilization ratio?

I try to do that on all my cards, although it would have been a little harder with a lower limit on my Freedom card. My usage last month was 10% of my existing credit limit but 19% of the proposed lower amount. If you can afford it, a good fix is to make an extra payment during the billing cycle to knock your utilization down before the statement balance is reported to the credit bureaus.

Have a question about credit cards? Email me at ted.rossman@creditcards.com and I’d be happy to help.

Information about the Chase Freedom card and the Capital One Quicksilver Cash Rewards Credit Card has been collected independently by CreditCards.com. The issuers did not provide the content, nor are they responsible for its accuracy.

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Credit Card Rate Report Updated: July 2nd, 2020
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13.91%
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