Risk Management and Credit Limit

Credit card companies use risk-management tactics to prevent financial losses and protect their profits. The problem with some of these tactics is that consumers who have good credit histories get hit with credit-limit reductions for things that sometimes are beyond their control. Other times customers' credit limits are cut because their accounts are considered unprofitable.

Account Delinquencies

It seems patently unfair, but your credit card borrowing limits can be lowered because other people aren't paying their bills. That's the case even if you have always paid your creditors on time. Credit card companies may rein in their customers' credit limits during an economic downturn as more cardholders begin falling behind on their payments. Companies reduce credit limits to prevent financial losses as account delinquencies rise. Unfortunately, all customers can get caught up in companies' efforts to reduce their financial risks.

Unemployment

A Bankrate article, "Why Credit Limits Get Cut," notes that unemployment rates in your city that are significantly higher than the national average can cause creditors to reduce customers' credit lines as well. To make matters worse, your card issuer may cut your limit if you reveal that your financial situation has changed. For instance, people may contact a card issuer to complain about an increase in interest charges and mention that they have been laid off. It's better to keep such information to yourself to avoid revealing a decline in your finances that may cause a creditor to reduce your limit.

Unprofitable Accounts

Credit card accounts that companies consider to be unprofitable also can be targeted for credit-limit reductions. This is another situation where people who think they're handling their accounts responsibly may get a bad surprise from their creditors. Companies don't make profits from people who pay off their credit card balances on time each month. Those cardholders usually aren't paying interest charges or late fees that bolster company profits. In turn, these responsible cardholders may get their credit limits slashed.

Considerations

If your credit limit gets cut, you can contact your creditor and ask to have the higher limit restored. Things could work out in your favor if you have been a long-time customer of the company. Consider paying down other debts if you can't get your higher credit limit restored. Lower limits make it appear that you're using a larger portion of your available credit, which could reduce your credit score. Your score is partly affected by how much of your available credit you're using.