Credit card company lowering limits?

[Anonymous]

I've never had this happen to me, and it hasn't happened to me, but I've recently opened new accounts and also extended my existing lines of credit as well, thus I have a great number of inquiries. My strategy here was to get them all out of the way and then refrain from applying for new credit for at least a year, possibly the full 2. The fact is, I have plenty of credit, but these opportunities keep popping up, and I'm inclined to take them for their bonus points, or their zero interest, etc. However, I've seen credit card companies reel in my father on his credit lines without warning. Now, to be fair, my father is not as responsible as I am-- he wallows in credit card debt, and although I explain to him time and again why he shouldn't go "pay off the truck" that carries 6% when he has over 50k in credit cards over 20%, I simply can't get through-- but anyway-- I keep ratio reasonable, but I do use my cards. Is there some formula that credit card companies use to determine whether or not they will cut you back? And by continuing to open accounts, am I increasing that risk? There's a furniture store offering 0% for 4 years-- that's just like saying free money is on the table, but I don't want to go get it and have everyone start freaking out and slashing my credit, particularly because I could just put it on a rewards card and pay it, but obviously the deal is excellent. Any advice would be appreciated. Thanks!

[Anonymous]

You cannot always control how CC companies handle limits and occasionally even people with excellent credit get AAs like CLDs. My parents have high income, established lines, and scores well north of 800. However, in the 2008 mortgage crisis, some of their credit limits were reduced. Why? No clue. 

With that said, you can take steps to minimize the risk of CLDs and other AAs:

First, keep your overall utilization low. High utilization (over 10% but especially over 30%) of all your available credit can result in AAs. Moderate to high utilization of a particular card (especially over 50%) can also result in AAs for that particular card even if your overall utilization is low. Barclays has a blog about it that you can find by searching for "A Case Study of a Credit Line Increase and Decrease - Part II" on google. myFICO has a no blog linked policy (not so clear for non-personal blogs) so I am not linking the article. In a nutshell, keep your utilization low and use the credit card to limit the chance of a CLD. 

Second, keep your profile free of other negatives and derogs. If you miss payments on a card or auto loan other cards will likely CLD you or even take AAs like closing your accounts. 

Third, avoid opening too many new credit accounts. The more credit accounts you open in quick succession, the more likely your existing issuers will get worried and take AAs. 

Fourth, avoid increasing your existing credit lines excessively compared to your income. This is not a major concern, but a few issuers are more sensitive of overall available credit. Most major issuers probably won't take AAs for this, but smaller issuers (especially some CUs) are very sensitive to overall available credit. If you have 200k credit and 20k reported income when you applied for the card or asked for your last CLI, many issuers will probably take AAs. As a general rule if your income is close to your overall credit limit, few if anyone will care. Most banks don't seem to care if your limits are 2-3 times your income, but at some point they probably will. Smaller issuers, however, seem to take action much earlier.

TLDR: If your income is proportionate to your credit limits and you maintain a healthy score, limited number of new accounts, and moderate (under 30% utilization overall and not over 50% on any given card) you probably will not see too many CLDs or other AAs.  

[Imperfectfuture]

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@Anonymous wrote:

You cannot always control how CC companies handle limits and occasionally even people with excellent credit get AAs like CLDs. My parents have high income, established lines, and scores well north of 800. However, in the 2008 mortgage crisis, some of their credit limits were reduced. Why? No clue. 

With that said, you can take steps to minimize the risk of CLDs and other AAs:

First, keep your overall utilization low. High utilization (over 10% but especially over 30%) of all your available credit can result in AAs. Moderate to high utilization of a particular card (especially over 50%) can also result in AAs for that particular card even if your overall utilization is low. Barclays has a blog about it that you can find by searching for "A Case Study of a Credit Line Increase and Decrease - Part II" on google. myFICO has a no blog linked policy (not so clear for non-personal blogs) so I am not linking the article. In a nutshell, keep your utilization low and use the credit card to limit the chance of a CLD. 

Second, keep your profile free of other negatives and derogs. If you miss payments on a card or auto loan other cards will likely CLD you or even take AAs like closing your accounts. 

Third, avoid opening too many new credit accounts. The more credit accounts you open in quick succession, the more likely your existing issuers will get worried and take AAs. 

Fourth, avoid increasing your existing credit lines excessively compared to your income. This is not a major concern, but a few issuers are more sensitive of overall available credit. Most major issuers probably won't take AAs for this, but smaller issuers (especially some CUs) are very sensitive to overall available credit. If you have 200k credit and 20k reported income when you applied for the card or asked for your last CLI, many issuers will probably take AAs. As a general rule if your income is close to your overall credit limit, few if anyone will care. Most banks don't seem to care if your limits are 2-3 times your income, but at some point they probably will. Smaller issuers, however, seem to take action much earlier.

TLDR: If your income is proportionate to your credit limits and you maintain a healthy score, limited number of new accounts, and moderate (under 30% utilization overall and not over 50% on any given card) you probably will not see too many CLDs or other AAs.  

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Excellent advice.  My credit union is one that tends to be quite conservative.  Though they won't take advers action, they will limit credit limits and keep higher apr's if you have too much available credit.  Right now, I tend to go with less than annual income.  That may change over the next few years, but fiscal responsibility (ie investments and savings) should take priority over acquiring new credit at some point.  JMHO

[takeshi74]

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@Anonymous wrote:
Is there some formula that credit card companies use to determine whether or not they will cut you back? And by continuing to open accounts, am I increasing that risk? 

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Creditors vary and there isn't one formula that covers all of them.  All creditors are concerned with utilization though the specific point at which they'll take adverse action can and does vary.  30% max is the general guideline.  Some creditors are more concerned about new accounts than others (see the PenFed "pyramiding" threads for just one example).  It's also a matter of one's credit profile.  Thicker profiles can generally handle new accounts better than thinner profiles.

[scorewatcher7]

Everyone has given excellent advice. In short, manage your credit responsibly (i.e. no high utilization, pay on time, etc), don't take out too many cards with any one bank, and don't go overboard with obtaining credit cards just to have them. If your existing CCC sees that you have too much credit available per your income level, they might scale you back just to limit their risk.