Can Requesting a Credit Reduction Affect a Credit Score?

Reducing your available credit usually has a negative rather than positive effect on your credit score, but it can be an effective tool for financial self-discipline. Requesting credit line reductions if you have outstanding debts will increase your debt to credit ratio, which harms your credit score. On the plus side, creditors can sometimes count it against you if you have large amounts of unused credit, as it means you could quickly take on a lot of debt and default on some of your accounts.

When to Request Credit Reduction

Request a credit reduction if you have trouble controlling your spending and fear you will allow your debt to mount to a point at which it will be difficult to service. As long as you maintain good credit, you will be able to request increases in your credit lines should you ever need them. If you have a great deal of available credit and aren't using most of it, closing some of your accounts can save you money on fees and make it easier for you to apply for alternative loans, credit cards, mortgages and other financial products.

Credit Reduction and Credit Score

Your credit-to-debt ratio is an important component of your credit score. The more debt you have relative to your available credit, the lower your score will go and the less willing lenders will be to grant you additional loans. If they are able, they may increase your interest rates, reflecting the added risk that they see in you. Reducing your available credit without commensurately reducing your standing debt will worsen your ratio.

Effects of Closing Credit Account

Closing a credit account makes the good record of that account no longer count for your credit score. In most cases, this will have a damaging effect on your score, as your good credit behavior will no longer be an active component of your credit report.

Involuntary Credit Limit Reduction and Credit Score

When a company reduces your line of credit unilaterally, it usually acts based on its belief that you are more of a credit risk than you appeared when you first were granted the line of credit. Usually, this is done in response to a decrease in your credit score due to late payments, delinquencies or collection notices. This prevents you from getting into even more debt, but reduces your financial flexibility.