Just as you can request an increase in your credit line from a creditor, you can ask it to lower your credit limit. Whether or not you should ask for a reduction in available credit will depend on your financial circumstances and the goals that you have set for yourself. Lowering credit limits can work in your favor or against you.
Reasons for Asking for a Lower Limit
The reasons behind asking creditors for a lower limit can vary. Perhaps you have evaluated your current credit situation and you feel your spending is spiraling out of control because you have too much available credit. Or maybe you are planning a trip and you don't want your credit card to have so much open credit on it during your travels in case it gets lost or stolen, assuming the creditor is willing to reinstate your credit limit upon your return. You may have paid your credit balances down or paid them off completely, or you don't want to be tempted by a high credit limit. A loan you have applied for may also be the reason behind asking your creditor for a lower credit limit.
Possible Effects of a Lower Limit
Asking a creditor to lower your credit limit can have a negative effect on your credit score, especially if you're already carrying a balance. For instance, if you have a credit card with an $8,000 limit and you've used $2,400, you have used 30 percent of your available credit. If you ask your creditor to lower your limit to $5,000, once the limit is lowered you will have used almost 50 percent of your available balance. The amount of credit you have versus the amount of credit you've utilized can shave points off of your overall credit score, especially if you're using over 30 percent of your available credit balance.
If a loan officer handling your mortgage loan request reviews your credit report and sees that you have $20,000 worth of unused credit on various credit cards, he may take into consideration the available funds that you could possibly utilize, causing you to have a larger debt-to-income ratio. To get the loan you want, you may have to request a reduction in your credit limit.
Alternatives to Asking for a Lower Limit
In certain situations, such as being approved for a home loan, asking for a lower credit limit can work to your advantage if you have a large amount of unused credit and lowering the limit wouldn't increase the amount of utilized credit to more than 30 percent of your available amount. Otherwise, you may want to consider alternatives such as paying down your credit card debt below 30 percent or more and then using your credit card only for amounts you can pay in full each month. This will take discipline on your part to resist the temptation to use your available credit balance.
Extra Advice
Any change in your credit score due to being granted a lower limit on your credit card won't last forever. If you aren't concerned about lowering your credit score temporarily, go ahead and request a lower limit if it will help you manage your debt.
If you are planning on applying for a large loan and you have used 30 percent or more of your available credit, you may not want to request a lower limit, because it could cause you to be denied for the loan due to a decrease in the amount between your credit limit and the amount you currently owe to the creditors.
If the creditor is interested in granting you the large loan, he can request that you pay off some or all of your credit balances before he will grant you the loan. Or he can suggest that you ask your creditors for a lower limit if you have a large amount of unused, available credit. Some lenders will view you as less of a financial risk for a large loan if you don't have a large amount of unused credit that you could use at any time. But requesting a lower limit won't work in your favor if you are already carrying balances close to 30 percent or more of your total credit limit.
Sometimes when you demonstrate financial responsibility in relation to a credit card account, the creditor will automatically raise your credit limit. You can monitor your statements for this change, and contact the creditor immediately to restore the original, lower limit.
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