Banks monitor credit reports, and make adjustments if it sees signs of risk
Dear Credit Smart,
Can a credit card company lower your limit based on credit report if you have made minimum payments on time with no late payments? – Pamela
Yes they can. Once you apply for credit the card issuer has the right to check your reports at any time. Creditors monitor their customers’ credit reports for a variety of reasons. One of these reasons may be to adjust a consumer’s credit limit. These adjustments can either raise or lower the limits, depending on what the creditor sees on the report.
This is one reason it is important for consumers to monitor their credit reports and do everything possible to keep the reports looking as good as possible. While it sounds like you have been making your payments on time, which is very important, there are other factors that your creditors may look at when making credit limit adjustments. It’s also important to know that if you have been late on any other accounts this will show up on your report and could be a factor in their decision.
Besides on-time payments, your creditors will be interested in your credit usage, credit inquiries, new accounts and available credit. Card issuers will be on the alert for signs of increasing risk, including taking out a lot of cash advances, or balances that stay near the credit limit. All of these factors are indicative of the way you use your credit and they all affect your score in various ways.
Whether the bank can cut your credit limit will be laid out in your agreement. The Bank of America agreement for its Visa Signature and World MasterCard cards, for example, says, “We may change your revolving lines from time to time. We base that decision on a variety of factors such as your payment and transaction history with us, and information that we receive from third parties, including credit reporting agencies.”
Like many things, these decisions are largely judgment calls. Making only minimum payments for a long time may signal to your creditor that you are living beyond your means. This may or may not be true, but what is true is that generally making only the minimum payment is not sufficient to get a consumer out of debt in a reasonable period of time. This is especially true for larger balances and/or cards with higher interest rates.
I would suggest you pull your credit report and see what it says for yourself. You can do this for free at www.annualcreditreport.com. Don’t worry that looking at the report will affect your score. Accessing reports for your own use does not count as a credit inquiry. It’s worthwhile to note that you are also not charged with an inquiry when a creditor looks at your report in these instances. These are called “soft” inquiries, as opposed to “hard” inquiries that open new lines of credit and do affect your score.
Once you know what is on your credit report, you can decide if you want to contact your creditor and see if you can change their mind about the decision to lower your limit. Your credit history with the creditor might carry some weight here; creditors don’t like to lose customers they have a long-standing relationship with. Your report will tell you when you opened your account if you are not sure how long you have been a customer.
Remember to always use your credit smarts!
See related:FICO’s five credit scoring factors