Let’s talk about credit limit . . .
I’m very proud that my credit score is over 800, and I intend to keep it that way. I pay my bills on time and never ever leave a balance. I consider myself responsible, at least financially (though my financial advisor wouldn’t necessarily always agree, right John?).
Every credit card has a credit limit. A credit limit is the maximum amount that a person may charge on a credit card or borrow from a financial institution. (Merriam-Webster).
Furthermore: A credit limit is based on several factors that influence a borrower’s ability to repay. Generally, the applicant’s credit score, income and job stability are the main factors considered in determining an appropriate credit limit.(Id.)
Hold onto your Credit Limit – Own It!
Credit limit affects credit score and credit score affects credit limit (i.e, which came first the chicken or the egg?), so I am interested in holding onto the credit limit I have. I am not a financial expert, but here are some tips that I’ve learned along the way.
1. Move Credit Limit Between Cards
If you apply for a credit card from a bank or issuer where you already have one or more credit cards, and your application is denied, it may be because the issuer feels it has already given you your maximum credit limit. If you call the issuer’s reconsideration line, and inform them that you are happy to have them transfer some of your credit line to the new card, they may decide to grant your application.
2. When Canceling a Credit Card, Transfer Credit Limit to Existing Cards
Whenever I cancel a card, I ask the issuer to move some or all of my credit limit from that credit card to other credit cards that I’m keeping (often you can do this from personal credit cards to other personal credit cards and from business credit cards to other business credit cards – you can’t do this with charge cards).
I recently had a snafu because I requested this too late, and lost the credit limit from a card I canceled. Here’s what happened: I decided to cancel my American Express Business Marriott Bonvoy credit card. Ever since it changed from SPG to Marriott it was of little value to me, especially when they removed lounge access on the card. On top of that, the annual fee increased, Marriott devalued and I hardly stay at Marriotts. Still, I hemmed and hawed until I finally canceled on the last day to cancel. I asked the Amex representative to transfer my credit limit, but she said that’s a process that would take 7-10 days, so I’d have to pay the $125 annual fee first. Well, having waited so long, I was out of luck. I canceled the card and forfeited the credit limit. Lesson learned: if you are going to cancel a credit card, do so within enough time to save your credit limit allocable to that credit card.
3. Downgrade to Fee-Free Credit Card Instead of Canceling a Card
If you are canceling a credit card because you don’t want to pay an annual fee, and there’s a free version of that card, you may want to ask the issuer to downgrade your credit card to the free card (or even another card offered by the issuer). This will keep your credit line intact, will not count as a new credit card application on your credit report, and is less likely to affect your credit score than an outright cancellation would. The downside is you might miss out on a sign-up bonus on the new card (but it never hurts to ask for that either).
4. Success Story: Contact Issuer When It Cuts Your Credit Limit
This past week, American Express notified me that it had unilaterally reduced the credit limit on one of my credit cards from $22,000 to $11,000 for non-utilization.
American Express was right on the use issue – I really hadn’t put any spend on that card in the past year (First lesson – put a little spend on all your credit cards). Curiously, I phoned American Express and stated that I’d rather not lose this $11,000 credit limit.
The representative informed me that American Express did not have updated financials for me since 2004 (something that in retrospect was impossible since I’ve applied for many American Express cards in the intervening years). He asked me for updated financial information, such as income, net worth, and whether I own or rent, etc., and voila, he upped the credit limit back to $22,000. I was surprised how easy this was! (second lesson: it never hurts to ask).
What tips do you have?
A New York frequent flyer who elegantly combines her passions for worldwide travel, running a gazillion marathons all over the globe and staying fit ... without sacrificing her fancy for good wine and food.
While getting a large credit limit cut in half in a situation like yours could really hurt your credit score if that was a large portion of your total available credit with all banks, what you say makes complete sense. OTOH, if your total available credit is a couple hundred thousand dollars and you only use a few percent of that available credit, the reduction really shouldn’t make much difference. In fact, sometimes having less credit with a bank is better because the bank’s liability with you is lower and that makes them more willing to issue you another card in the future. I’m below 5/24 but won’t apply with Chase any time soon because I have five business and eight personal cards with them, totaling over 100K in credit lines. If I apply for another card and the application is reviewed, the reviewer may shut down some or all of my accounts because I might have too many cards or too much credit with them.
thank you so much for your contribution.