Can Requesting to Lower My Credit Card Limit Affect My Credit Score?
Credit cards are a convenience, but can also be a curse. While cards provide a means for safe, fast transactions, they can cause you to spend beyond your means. Credit card holders seeking to reduce credit availability to help control their spending should understand that lowering a credit card limit may reduce their credit scores.
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FICO Scores
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Credit scores -- also known as FICO scores, named for the company that developed the model for calculating the scores -- help creditors assess your risk as a customer. Credit scores are based on a range of factors, including payment history, amounts owed, types of credit used and new credit. Payment history is the factor that affects your credit score most. If you have a record of paying your bills on time, your credit score increases each month.
Amounts Owed
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Your credit score is impacted by how much of your available credit is used on a monthly basis. "Called a credit utilization ratio, your score dips when that quotient climbs," explains the Bankrate website. Keeping your credit card balances low can help you improve your credit utilization ratio and increase your score each month. Lowering your credit card limit negatively impacts your score because you are increasing your credit utilization ratio. According to Bankrate, your credit cards balances should not exceed 30 percent of the total amount of credit available to you.
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Credit Impacts
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Keep your credit card limits high to increase your credit utilization ratio. "The people in this country that have the highest scores -- 760 and above -- have an average utilization of 7 percent," reports Bankrate. Using a credit monitoring service can help you track how much your credit score improves each month.
Managing Your Credit Score
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Avoiding the temptation to use credit cards by decreasing your credit limit may be worth the temporary reduction in your credit score. If you have a history of using more credit than you can afford to pay off in a short period of time, lowering your limit may have more benefits in the long run. Keeping accounts in good standing and keeping your debt balances low lead to a higher credit score over time. Request copies of your credit report annually to ensure all reported information is accurate. You can request a credit report free of charge once a year from each of the three major credit bureaus -- Equifax, Experian and TransUnion -- through the AnnualCreditReport.com website.
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