When I was younger, I had applied and was accepted by a lender that provided credit cards specifically meant for medical purposes. I was ecstatic knowing that I could finally take care of myself and begin working on some much-needed dental repair. It was a rough process, and I needed my Father to co-sign with me, but I was well on my way to having a better smile. Now I knew that being an authorised user on an account meant that all my positive and negative credit actions would affect my dad and I was sure to keep my credit below a 20% utilization rate for when the card reported. One day, I woke up to a notification that the card provider had dropped my credit limit from $4000 to $2000 and the current debt on the report was reported. Now I was sitting at about $800 on the account and that decrease in my credit limit went from about a 15% credit utilization rate to about 40%. This dinged both my credit and my father’s score substantially as he had perfect credit history and I had little credit in my name. I was frantic attempting to find out just how I could combat this change in my limit and was furious they had done this after a year of on-time payments and low credit utilization.
Can They Do That?!
Though it is unsavory, the short answer is yes. A card issuer can lower the amount of money you can borrow from them at any time just as you can request an increase of your limit at any time. The lender can drop your available credit limit for a multitude of reasons; consumers being at a higher risk to default, account risks and economic hardships can all have an impact on their decision. An example of credit limits decreasing on a massive scale was when Covid 19 first hit. With many borrowers facing financial hard ships, unemployment rising daily and the nature of future economic changes, thousands of Americans had their credit limit decreased by their lenders. Though there are some regulations put in place when it comes to credit limit decreases, the card issuer has the right to lower and raise your credit limit as they see fit as they are the one who is lending the money to begin with.
Can I fight Against This?
Currently, there are no laws that prevent the lender from reducing the credit limit of one of their borrowers’ cards or the damage that can occur with a lower limit. As long as the changes do not breach your card holder agreement, a decrease can happen when the lender sees fit.
The FCRA (Fair Credit Reporting Act) does require the card issuer to send notice to the consumer whenever they act with a consumer’s card based on your credit report. It is also not likely that the lender will lower your limit lower than the amount you have already borrowed (if you have $800 borrowed, they will not lower the limit to or below $800). If this does happen however, there are Card Act provisions that help protect you from fees that come with going above your limit.
If you are unsure if the credit decrease is merited, you can always contact the lender and attempt to find out why/ come to an agreement that can benefit you both. Sometimes adding to the interest rate or paying a large sum of the borrowed funds can sway the holder to reinstate your limit to is previous amount.
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