Credit card companies have the freedom to raise or lower your credit limits as they see fit. If you’ve been a long-standing customer who’s always paid your bills on time, your credit card issuer might raise your limit as a reward for your diligence.
But if you’ve missed payments — even on a different card or loan — your credit card provider can lower your limit. Or even if you’ve made all your payments for all your loans on time, your creditor might decide that other financial moves you’ve made increase your risk of missing payments in the future.
Keepings tabs on you
You probably know that whenever you apply for an auto loan, mortgage, or student loan, creditors will review your credit reports looking for signs of risky financial behavior. Missed or late payments damage your chances of getting new credit or leave you with high interest rates if you do get approved.
But you might not know that your credit card providers can check your three credit reports — from Experian, Equifax, and TransUnion — even after you’ve opened an account with them.
Remember, credit card companies are continuously loaning you money. They want to make sure that you’re not at risk to stop repaying what you borrow. One way they do this is by pulling your credit reports.
If your card issuer finds troubling signs on your credit reports, it might decide to protect itself by lowering your credit limit.
When you open a new credit card account, the documentation you receive will spell out that your creditors have the right to evaluate and adjust your credit limit. There is nothing you can do to stop this from happening if you want to keep the card. (See also: 9 Actions to Take When You’re Denied a Credit Limit Increase)
Why did your limit fall?
If your credit limit has dropped, it’s important to figure out why.
If you missed payments or paid your credit card bill late, that’s an obvious reason. Credit card issuers will look at your payment history. If you miss too many payments, your issuer may lower your credit limit or cancel your account.
But even if you’ve maintained a perfect payment record, your credit card issuer might still lower your limit. Maybe you always make only your minimum monthly payment. This keeps you from racking up late charges, but it also means it will take years to pay off your existing debt. If your credit card provider sees that you never pay more than the minimum, it might think that you are having financial problems and lower your limit to protect itself.
Your credit card provider can also see any missed or late payments you’ve made on other accounts listed on your credit reports, including your mortgage, student loan, or auto loan payments. Even if you’ve maintained a perfect record with your credit card, your issuer could view those other missed payments as a warning sign and lower your limit.
Or maybe you’ve run up the balances on your other credit cards. Again, all of your card issuers can see this information on your credit reports. The high balances can make your card issuers nervous, and some of them may lower your limit, even if you aren’t close to maxing out those cards yet.
In short, any financial missteps that end up on your credit reports could cause your credit limit to tumble.
Protecting your limit
If you want to protect your current credit limit, it’s important to continue making sound financial choices. Don’t make late payments on any of your credit cards or other loans. Don’t run up too much debt on your cards, either. And if you do have credit card debt, devote extra funds each month to paying it down. In addition to protecting your credit limit, you’ll also be protecting your all-important credit score. (See also: The Fastest Method to Eliminate Credit Card Debt)