Does a Lowered Card Limit Hurt my Credit Score?
Posted: Sun Jul 23, 2023 8:00 am
ChatGPT says yes, and gives reasons why. Is it right?
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Yes, if a bank lowers your credit limit on a credit card, it can potentially affect your credit score. Your credit score is determined by various factors, and one of the key elements is your credit utilization ratio, which is the amount of credit you're currently using compared to the total credit available to you. It is typically expressed as a percentage.
When a bank lowers your credit limit, it reduces the total amount of credit available to you. If you continue to carry the same balance on your credit card(s), your credit utilization ratio will increase because the total credit available has decreased. A higher credit utilization ratio can negatively impact your credit score because it may suggest a higher risk to lenders.
Here's an example to illustrate the impact:
Let's say you have two credit cards with a combined credit limit of $10,000. You have a balance of $2,000, resulting in a credit utilization ratio of 20% ($2,000 / $10,000).
If one of your credit card issuers lowers your credit limit to $5,000, and you still have a $2,000 balance, your credit utilization ratio will jump to 40% ($2,000 / $5,000). This higher ratio could potentially lower your credit score.
It's essential to monitor your credit utilization ratio and make adjustments to your spending and payment habits accordingly, especially when your credit limit is reduced. Keeping your credit utilization ratio low, ideally below 30%, is generally considered favorable for your credit score.
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Yes, if a bank lowers your credit limit on a credit card, it can potentially affect your credit score. Your credit score is determined by various factors, and one of the key elements is your credit utilization ratio, which is the amount of credit you're currently using compared to the total credit available to you. It is typically expressed as a percentage.
When a bank lowers your credit limit, it reduces the total amount of credit available to you. If you continue to carry the same balance on your credit card(s), your credit utilization ratio will increase because the total credit available has decreased. A higher credit utilization ratio can negatively impact your credit score because it may suggest a higher risk to lenders.
Here's an example to illustrate the impact:
Let's say you have two credit cards with a combined credit limit of $10,000. You have a balance of $2,000, resulting in a credit utilization ratio of 20% ($2,000 / $10,000).
If one of your credit card issuers lowers your credit limit to $5,000, and you still have a $2,000 balance, your credit utilization ratio will jump to 40% ($2,000 / $5,000). This higher ratio could potentially lower your credit score.
It's essential to monitor your credit utilization ratio and make adjustments to your spending and payment habits accordingly, especially when your credit limit is reduced. Keeping your credit utilization ratio low, ideally below 30%, is generally considered favorable for your credit score.
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