Credit cards give you financial flexibility while utilizing them responsibly involves more than just making your bill payments on time. It's important to aware of your credit limit, which is the maximum amount you can spend using your card. This limit is determined by the issuer using criteria such as creditworthiness and income, but it is not assured to remain constant. While certain financial habits or missteps can lead to a reduced limit, which may impact your overall credit health.
These are some common mistakes that might unintentionally trigger a reduction in your credit limit:
1. High Credit Utilisation
Using a large percentage of your limit may worry lenders, as regularly spending close to or over your credit limit suggests that you are heavily dependent on borrowed money rather than your own savings. Due to this they can reconsider your profile if this activity gives the impression that you are in financial distress. They may decide to lower your credit limit to minimize their exposure to potential losses.
2. Late or Missed Payments
Late or missed payments indicate that you don't have a very strong repayment history. Most lenders would take this to mean that your finances are poorly managed or unstable. If these delays occur frequently, lenders may see you as a higher-risk borrower. Due to this, they could reduce your credit limit to minimize potential losses and protect against possible defaults.
3. Change in Income or Financial Circumstances
Lenders can also review your credit profile if your income significantly drops or your debt increases. If your income capacity declines or your debt increases, issuers can decrease your credit limit to be more aligned with your ability to repay. The lenders monitor these things to stay active with a customer's financial changes.
4. Less Card Usage
Credit card companies prefer accounts that are utilized actively yet properly. If you rarely use your card or leave it idle for long periods of time, it may indicate apathy or a future account termination. In these situations, lenders may reduce the credit limit as they believe the full limit is no longer necessary or justified.
5. Frequent Credit Applications
It may be a red flag to submit several credit applications quickly. It shows that user might have a possible cash shortage. When lenders detect this pattern through hard inquiries on your credit report, they may interpret it as financial stress and reduce your existing credit limit to minimise exposure.
How to Maintain a Healthy Credit Limit
Making on-time payments and using credit responsibly can keep healthy limit. Try to avoid maxing out your card and keep your credit use below 30 per cent of the entire amount. If your income increases as it may strengthen your profile inform your issuer. Additionally, maintaining older credit cards might help you have a longer credit history, which can improve your creditworthiness.
