Why Did My Available Credit Go Down?

Available credit, the amount you can still charge on your credit accounts, can decrease for various reasons. Understanding these changes is important for managing your financial standing. This article explores common factors that lead to a decrease in your available credit.

Understanding Credit Utilization

An increase in your credit utilization is a common reason for a decrease in available credit. Credit utilization refers to the percentage of your total credit limit that you are currently using. When you spend more or carry higher balances on your credit cards, your available credit naturally shrinks.

For example, if you have a credit card with a $1,000 limit and you spend $300, you have $700 of available credit. If your spending increases to $500, your available credit drops to $500. This ratio is a significant factor in credit scoring models, with experts advising to keep it below 30% to demonstrate responsible credit management. Consistently making only minimum payments can also contribute to higher outstanding balances, which reduces your available credit over time.

When Lenders Adjust Credit Limits

Credit card issuers can decide to decrease your credit limit. This action often responds to changes in your overall credit profile, which lenders periodically review. Factors such as late payments, increased debt, or a significant drop in your credit score can signal increased risk to a lender.

Lenders also adjust limits based on economic conditions to reduce their overall risk exposure. If an account shows prolonged inactivity, a lender might lower the limit or close the account. Federal regulations generally require lenders to notify you of adverse actions, providing reasons for the decrease.

Account Closures

The closure of a credit account, whether initiated by you or the lender, directly impacts your total available credit. If you choose to close an account, its credit limit is removed from your total available credit. This can increase your overall credit utilization ratio if you carry balances on other cards.

Lenders can also close accounts for various reasons, including inactivity, repeated late payments, or breaches of the cardholder agreement. While lenders are not always required to provide advance notice for an account closure due to inactivity, they typically must notify you if they close an account due to adverse information.

Investigating and Responding to Changes

If you notice a decrease in your available credit, the first step is to investigate the cause. Review your recent credit card statements and online account activity to determine if increased spending or higher balances are the reason. This check can quickly confirm if your credit utilization has risen.

Next, obtain copies of your credit reports from the three major credit bureaus: Experian, Equifax, and TransUnion. You are entitled to a free copy from each bureau once every 12 months through AnnualCreditReport.com. These reports will show if a lender reduced a credit limit, if an account was closed, or if negative information, such as a late payment, has been reported. If you identify an error on your credit report, you have the right to dispute it with the credit bureau and the information provider. If the reason for the decrease is not clear from these sources, contact the credit card issuer directly for further clarification.