Credit Score Expert Advice: Asking for Lower Credit Card Limits Could Hurt You

Smart Phone Showing Credit Score On A Screen.
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If you’ve got a credit card with a balance so high you barely put a dent in it each month, you may be tempted to ask the bank to lower your credit limit. But Liz Weston, CFP and personal finance columnist for The Los Angeles Times, said doing so would be a mistake.

Here’s why: You instantly increase your credit utilization ratio.

Credit Utilization Ratio Defined

Simply put, your credit utilization ratio, or credit utilization rate, is how much of your available credit limit you use, expressed as a percentage. And according to myFICO, it significantly impacts your credit score. When your score gets calculated, the amount you owe on your accounts makes up 30% of the financial metric.

Lenders like to see credit utilization rates as low as possible, generally well under 30%. Higher utilization than that can indicate overborrowing, which makes you a financial risk for defaulting on the debt.

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Credit Utilization Ratio Example

Let’s say you have a credit card with a $10,000 limit and regularly use $1,000 of your available credit. In this example, your credit utilization ratio is 10%.

But if you ask your bank to reduce your credit line to $3,000, your utilization rate automatically jumps to 33%. Chances are, your credit score will suffer as a result.

If you want to instantly lower your credit utilization rate, open a new credit card account. Or, if you’ve asked your credit card issuer to reduce your credit line, ask them to reinstate the higher limit.

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Boost Your Credit Score Even Higher

If your credit score is under 670, follow these tips to improve it:

  • Pay your bills on time — every time. Your payment history has the greatest impact on your credit score.
  • Reduce your account balances. Your credit utilization ratio will gradually drop as you do.
  • Keep old accounts open. Credit scoring models and lenders like to see a high average age of credit.
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Remember: Building and maintaining a high credit score is a long game. But your dedication will ultimately pay off if you consistently manage your accounts responsibly.

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About the Author

Laura has been a freelance writer since 2018. Her work primarily focuses on managing your money, navigating your career, and running a successful business. She earned her MBA and a Bachelor's degree in Psychology during her previous career in human resources. She is also a business coach to new and aspiring freelancers and runs an online resource hub for them called Before You Go Freelance. In addition, she helps other writers get clear on their message, plan their content, and produce compelling written works.
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