Have you ever faced a sudden reduction in your credit card limit? It can be frustrating, but there are steps you can take to address it. Here’s a thread explaining why banks might reduce your limit and what you can do about it.
1. First Step: Contact Customer Care
If your credit limit has been reduced, call the bank’s customer care. Understand why it happened, and if possible, request to restore your limit. Also, take measures to avoid the reasons that might have led to this situation.
2. Common Reasons for Credit Limit Reduction
(i) Payment Defaults
- Missing payments can label you as a risky customer.
- Banks may see you as unable to handle credit responsibly, leading to a reduced limit.
(ii) Carrying Forward Dues
- Regularly paying only the minimum due increases your outstanding balance.
- Over time, this might signal financial instability, prompting a credit limit reduction.
(iii) High Credit Utilization
- Frequently using 80%-90% or more of your credit limit can appear risky.
- A high utilization ratio suggests dependency on credit, which banks don’t favor.
(iv) Owning Too Many Cards
- Having multiple credit cards with a high combined limit can raise red flags.
- Banks might feel you’re overly reliant on loans, reducing your limit as a precaution.
(v) Rarely Using the Card
- If you barely use your credit card, banks may lower your limit to manage resources better.
- Remember, banks benefit when you actively use their cards.
3. Impact of Economic Instability
During economic crises, like the COVID-19 pandemic, banks may reduce credit limits across the board to minimize their risks.
4. How to Avoid Credit Limit Reduction
- Always pay dues on time and in full.
- Keep your credit utilization ratio below 30%.
- Use your credit card regularly but wisely.
- Avoid relying excessively on multiple credit cards.
5. What to Do Next
If your limit is reduced:
- Speak to customer care and explain your financial stability.
- Request a review of your credit limit.
- Focus on improving your credit score to maintain better limits in the future.
Stay informed and proactive to ensure a healthy credit profile!