Top Effective Tips to Help Fix Your Decreased Credit Card Limit

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Have you noticed a recent decrease in your credit limit, and you’re wondering why? This could happen because of multiple reasons. Perhaps you have not used your credit card in a long time or maybe your spending habits have changed. 

You can do various things like building your credit limit back up or lowering your expenses to increase your credit limit back to as it was. This can also help you improve other factors like your credit score and credit reports that affect your credit card limit

Let us find out all possible reasons that can get your credit limit slashed substantially. Also, we will take you through things that you can do to get your credit card limit back up.

Reasons Why Your Credit Limit Decreases

Your credit card limit is highly affected by your credit Score and credit reports. There are three consumer credit bureaus named Experian, TransUnion and Equifax in the UAE that have records of individuals’ credit reports and credit scores.

The lender checks at least one of your credit reports before they set your credit card limit. These factors help them determine your creditworthiness. They reflect the amount you owe to the lenders and how frequently you pay your debts. These reports indicate how you handle your finances and deal with your borrowings. The lenders also consider your payment history and ongoing loans. 

Even if, after checking all these reports, the credit card owner sets up a credit limit, they can decrease it anytime without giving any warning. The card owner does not apply any late payment or over-limit usage charges until 45 days after you have been informed about the decrease in limit. 

Here are the major reasons why your credit limit might get decreased.

  • Missed or Late payments - The credit card owner keeps a check on all the transactions made on your credit card. They might have noticed some of the late or missed payments and figured out that you are going through some difficult financial times. 
  • Low credit utilisation - If your credit card owner notices that you have not utilised your credit card limit in a long time, they just go ahead and decrease it.
  • High Credit utilisation - When your credit card reports show that you are spending a significant amount of money out of your credit card, it increases the credit utilisation ratio and impacts your credit score. A ratio of 30% or more can drop your credit score immediately and give the card owner a reason to lower your credit card limit.

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Things to do When Your Credit Limit is Lowered

Here is what you can do to check why your credit card limit was decreased.

  • Contact Your Bank and Ask for the Reason - The first thing you need to do after your credit limit gets decreased is get in touch with the concerned bank and ask for the reason. The reason can help you use your credit card more carefully in the future and will also help you figure out when and what went wrong.
  • Check Your Credit Reports - You can also check your past credit reports to figure out the errors and negative issues that could be the reasons for the card owner to lower your credit limit. If you see any mistakes even after managing your card well, you must get in touch with the card owner to fix them and get your credit card limit increased to as it was.
  • Use Your Credit Card Responsibly - If your owner does not agree to increase your credit limit as before, you must start using your card wisely. Make on-time payments and try to clear the outstanding every month. This can help you improve the performance of your card and get your credit card limit increased again.

How Decrease in Credit Limit Affect Your Credit Score?

A decrease in the credit card limit can end up affecting your credit score as the credit score calculation majorly depends on your credit utilisation ratio. The credit utilisation ratio gets calculated based on your credit limit, your credit card balances, etc. 

For example, if your credit card limit is AED 10,000 and the balances on your credit cards add up to AED 2,000, your credit utilisation ratio would be 20%.

And if your credit card gets discontinued or the card owner closes or decreases its limit, the whole credit limit declines. 

For example, one of your credit cards with a credit limit of AED 2000 gets cancelled. Now, the total credit limit will be AED 8,000. However, the balances that add up are the same as AED 5,000. So the credit utilisation ratio increases to 25%. If the credit utilisation goes above 30%, your credit score gets impacted negatively.

You may also like this - 6 Ways Credit Cards Affect your Credit Score

How to Minimise the Impact of a Decreased Credit Limit?

Here is how you can minimise the impact of a decreased credit limit.

  • Reduce Your Spending - You must reduce your spending and clear your credit card outstanding. Check the previous reports and figure out if you are forwarding the credit card outstanding from month to month. If so, you must pay off all your credit card debts and keep those accounts open to improve your credit card utilisation score.
  • Open a New Credit Card Account - You can also apply for another credit card to cut down the impact of the credit card limit decrease. Make sure you reduce your spending and pay the bills for your old and new credit cards on time. There is one thing to keep in mind that once you open a new credit card account, your credit score will drop on a temporary basis due to the hard inquiry on your credit reports. However, over time, you can keep using the card and improve your credit scores.
  • Try to increase the Limit of the Existing Credit Card - You can also get in touch with your existing credit card owners and ask them to increase your credit card limit. You can use your internet banking to know the procedure and place the request for a credit limit increase.

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How to Apply for a Credit Card in the UAE?

Here are the simple steps to apply for a credit card in the UAE.

  • Analyse Your Expenses - You first need to analyse your expenses before you apply for a credit card. You must have an idea of how you are going to manage your finances, the offers you are looking for, etc. so that you can make the right choice.
  • Explore the Benefits  - Check the credit cards provided by different banks and list down the features and benefits they offer. As you have already noted down your preferences, it won’t be difficult for you to shortlist a few options. Once you do, compare the deals and finalise the card you want to apply for.
  • Apply for a Credit Card - Check the eligibility criteria and apply for a credit card. Submit all the required documents and wait for approval from the lender. Once your application gets approved, you can go ahead and use your new credit card.
You may also like this - Supplementary Credit Card - What is it and How it Works?

The Bottom Line

You might not control the fact that your credit card limit has been reduced, but you can learn from your mistakes. Go through all your reports and take the right steps to make things fixed. Make sure you make no errors and take essential steps to get your credit limit increased.

Keeping up the good financial habits such as clearing the outstanding on time, not overusing the provided credit card limit, etc. can lead you to higher credit scores and save you from getting your limit decreased.

Related Links-:

Tips to Increase Your Credit Card limit & Apply for Credit Card Limit Increase in UAE

How Much Credit Limit You Need for Balance Transfer in UAE?

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