Does Lowering Credit Limit Affect Score?

Did your credit card issuer recently lower your credit limit? You may be wondering how it will affect your credit score. 

It depends on your credit profile. But first, you should know how your credit score is calculated. 

Here’s a quick breakdown: 

  • Payment history (35%): lenders and creditors want to know that you make timely payments each month before extending credit to you
  • Amounts owed (30%): this component of your credit score factors in the percentage of your credit limit you’re using on revolving accounts (or credit cards) 
  • Length of credit history (15%): a longer credit history helps your credit score as it demonstrates to lenders and creditors that you have experience managing debt and credit products 
  • Credit Mix (10%): a healthy mix of revolving accounts (credit cards) and installment loans is preferred 
  • New Accounts (10%): accounts for any request for credit or debt products you apply for

When you or your creditor lowers your credit limit and you have a balance, your credit utilization percentage will change.

Check out the example below with a $500 credit card balance and varying credit card limits. 

Credit Card BalanceCredit Card LimitCredit Utilization
$500$2,00025%
$500$1,50033%
$500$100050%
$500$75066%

As you can see above the same balance with varying card limits can greatly affect your credit utilization. The sweet spot for credit utilization is 30% or under. If you are staying in that range it’s best not to lower your limit. 

How to Preserve Your Credit Score if Your Limit is Decreased 

There’s no way to predict credit limit decreases. Fortunately, there are actions you can take to preserve your credit score if your limit is reduced. 

A few tips to keep in mind: 

  • Check your credit report. Visit annualcreditreport.com to retrieve free copies of your credit report from each bureau. Review the contents to ensure fraudulent activity or errors didn’t trigger negative credit reporting that resulted in the lowering of your credit limit. If you notice mistakes or inaccuracies, file disputes promptly. 
  • Sign up for credit monitoring. Keep tabs on your credit for free with credit tracking from MoneyLion
  • Make timely payments on your outstanding debt obligations to strengthen your payment history (and get current on any past due accounts). Delinquent accounts may be reported to the credit bureaus when they hit the 30-day mark. This could drop your score by up to 100 points, and late payments linger on your credit report for 7 years. 
  • Pay down credit card debt balances to lower your credit utilization ratio. As mentioned earlier, you want to get to 30 percent or lower. 
  • Only apply for new credit as needed to avoid hard inquiries to your credit report. Each hard inquiry knocks 2 to 5 points off your credit score, and inquiries are reflected on your report for 2 years. 
  • Don’t close idle cards as this also hurts your credit utilization ratio.

A Simple Way to Improve Your Credit Health

You can start the journey towards improving your score and overall credit health today with a Credit Builder Loan from MoneyLion.

There’s no credit check, and you can qualify for up to $1,000 in just minutes. The loan proceeds are deposited into your account right away.

MoneyLion may deposit a portion of the loan proceeds into an interest-earning Credit Reserve Credit. But don’t worry as the funds will be released (along with the interest earned) to you when the loan is paid in full.

Each payment is reported to the 3 credit bureaus – Experian, Equifax and TransUnion – to boost your payment history. 

Even better, you won’t have to worry about late fees or penalties as the affordable payments are deducted from your checking account. 

See if you qualify for the Credit Builder Loan

Get cash and build credit!

Join Credit Builder Plus to get a low APR loan and 0% APR cash advances TODAY, plus exclusive cash rewards and more. Over half of members raise their credit over 60 points within 60 days!