For many, this year has wreaked havoc on our finances, and we continue to face new consequences of the pandemic each day.
One of the latest offshoots we’ve heard about is credit card companies decreasing consumers’ credit limits.
Why? As more and more Americans lose jobs, they’re worried customers will begin defaulting on their debt. So by lowering your credit limit, they’re reducing their risk.
Really, credit card companies should be notifying you about this change, but unfortunately it’s not legally required.
What an Unexpected Lower Credit Limit Means For You
A lower credit limit doesn’t just mean you can’t charge as much to your credit card. It could also result in a lower credit score.
When your credit card lowers your credit limit, chances are, your credit utilization rate will increase. Generally, you want to keep this below 30%, but when your limit drops and you don’t change your spending habits, the utilization rate will inevitably increase.
Now, this might not seem like a big deal, but your credit utilization rate affects one-third of your credit score. That’s a pretty big chunk.
How to Fight Back and Ensure You Keep a Healthy Credit Score
So, what’s one to do?
First, check your credit limit. Typically, you can find this on your monthly billing statement or through your online credit card portal.
Second, check your credit score. You can do this through a free website like Credit Sesame. Within two minutes, you’ll get access to your credit score, your credit utilization rate and a handful of personalized tips to help you improve your score.
Third, if your credit limit has in fact dropped and this is affecting your credit score, reach out to your credit card company and ask if your old credit limit can be restored. There’s no guarantee this will work, but it’s worth a try.
If you don’t have success, keep an eye on how much you charge to your card. If you have no other choice but to charge your monthly expenses (we get it), then you can use Credit Sesame to find other ways to improve your score.
Although this doesn’t seem fair, there are proactive steps you can take to make sure the pandemic doesn’t ruin your credit score. After all, it’ll play a big role in future purchases (think: home, car), so it’s important to pay attention!