Capital One, one the nations largest credit card issuers announced last week that it will be reducing credit limits to “some” of it’s cardholders. This decision is in response to the current COVID-19 pandemic and it’s negative impact on unemployment rates and benefits. The additional $600 per week unemployment benefit expiring soon was also a contributing factor.
“Credit Card companies aren’t legally required to notify you before cutting your credit limit, unless the change was due to adverse information on your credit report. ” (The Ascent, Daly, 8/31/2020) Since this is not the case in this situation, the easiest method of finding out if your limit has been reduced is to access your account online, call the 1800 number on the back of the card or simply waiting for the arrival of your monthly statement.
What is the impact of a lower Credit Limit
Credit limit reduction impacts your credit utilization ratio. Simply stated, this ratio is the amount of credit you are currently using in comparison to the amount of credit you have. A low CUR (credit utilization ratio) is usually accompanied by a good to excellent credit score. Conversely, a high CUR will probably be indicative of a lower credit score assuming all other factors are equal. An example:
If your current limit is $20,000 and are carrying a $5,000 balance your CUR is 25%. Not bad
However, if your credit limit was reduced ti $10,000 on the same $5,000 balance your CUR is now 50%. Not so good.
What to do if your limit is reduced
Step 1, is call the Credit Card Issuer and request the reasoning for the reduction to ensure it is not the result of negative credit bureau reporting. Step 2, Once you’ve determined negative information is not the case, then ask for the reduction to be reconsidered. Your payment history, length of time the account has been opened and maintained in good order are good points of contention. If the Credit Card Issuers stands their ground, then review your current position with that account to see what’s the current CUR and if it’s possible to lower the outstanding balance or not make any additional large purchases with that particular card. You can also investigate the possibility of completing a balance transfer to another credit card taking advantage of promotions which in turn reduces your CUR with the old card, you typically can get a 0% balance transfer interest rate for some specific period which will help you reduce the outstanding balance in a more efficient manner.
Free Financial Needs Analysis
If you are need or desire a comprehensive and personalized Financial Needs Analysis (FNA), please contact me directly at louis@louisromero.com. The FNA is a complimentary service I provide to all my clients. Within this plan you will receive a individualized debt reduction plan in addition to the other aspects of the FNA which include, savings and retirement planning and college education savings planning (if applicable). I look forward to be able to serve your personal financial needs.