Does Making the Minimum Payment On Your Credit Card Hurt Your Credit Score?

If you have a credit card, you might be only making the minimum payment, and so you might be wondering does making only the minimum payment affect or hurt your credit? This post provides you with everything you need to know about only making the minimum payment on your credit card.

Does Making Only The Minimum Payment Hurt Your Credit?

Making only the minimum payment on your credit card keeps your account in good standing, however, if your credit card balance substantially increases, this will increase your credit utilization, possibly lowering your credit score.

You should always strive to keep your credit utilization (how much of your available credit you're using) below 10% and never exceed 30%. If you use more than 30% of your available credit, you will notice a drop in your credit score.

Although making the minimum payment on your credit card keeps your account in good standing because it results in positive payment history being reported on your credit report, if you accumulate too much debt on your credit card, you could see a drop in your credit score.

So, making only the minimum payment can indirectly hurt your credit score. For your payment to positively affect your credit score, you should try to make more than the minimum payment to reduce your credit utilization.

So, what exactly does credit card minimum payment mean?

Your credit card minimum payment is the least amount of money that you are required to pay to keep your account in good standing. Typically, when you apply for a credit card, you sign a credit card agreement, agreeing to make the minimum payment on your credit card.

Failing to make the minimum payment on your credit card will result in a late payment being added to your account status, significantly lowering your credit score.

In fact, a single late payment can lower your credit score by 100 or more points. The higher your credit score, the more your credit score will drop.

Paying your credit card late lowers your credit score because your payment history makes up 35% of your credit score. If you make your payments on time, this factor will boost your credit score. On the flip side, missing payments can cause significant damage to your credit. So, make sure to make your payments on time even it means only making the minimum payment to prevent your account from being reported as late.

How Does Making Only The Minimum Payment Affect Your Credit Score?

Your payment history makes up 35% of your credit score, so making the minimum payment on your credit card actually helps you build positive payment history, which helps your credit score. That said, the amount of your minimum payment has no impact on your credit score, so whether your minimum payment is low ($25) or high ($500+), the impact on your credit is the same.

Increase in credit utilization rate

That said, if you accumulate too much debt on your credit card, the accumulation of debt could lower your credit score as it raises your credit utilization rate.

As a rule of thumb, you should use less than 10% of your available credit and never exceed 30% credit utilization.

If you utilize more than 30% of your available credit, you will notice a significant drop in your credit score.

This is so because your credit utilization makes up 30% of your credit score. So, if you don't pay down your credit card balances by paying more than the minimum payment, you could lower your credit score if the balance on your account continues to grow. This is especially true if you exceed 30% credit utilization.

One of the best things you can do to improve your credit score is to pay off your credit cards. This is so because you will be utilizing 0% of your available credit, which provides an excellent boost to your credit.

Paying more in interest

That said, if you're only making the minimum payment on your credit card, you should keep in mind that you'll be paying more in interest on the balance that you're carrying. This is so because interest charges apply to any balance that you leave on your credit card unless you have a credit card with a 0% introductory APR where you don't pay interest for a limited period of time.

Paying down your credit card debt will take significantly longer

Additionally, if you're only making the minimum payment on your credit card, it will take you significantly longer to pay off your card.

Should You Make a Payment Larger Than Your Minimum Payment?

Even though only making the minimum payment keeps your account in good standing, you should consider making more than the minimum payment on your credit card to reduce the balance on your account.

Reducing the balances on your credit card accounts is great for your credit score because your credit utilization (how much of your available credit you're using) makes up 30% of your credit score. The lower the balances on your credit cards, the better your credit score will be.

If you only make the minimum payment on your credit card, your credit card balance may continue to increase, lowering your credit score.

On the other hand, paying more than the minimum payment helps you keep your credit card balances as low as possible, helping your credit score by reducing your credit utilization.

Additionally, lenders like seeing that borrowers are making more than the minimum payment. They can see the amount of your last payment because it appears on your credit report. If a lender sees that you've made a payment that's larger than your minimum payment, they will view this positively when deciding whether to extend credit to you or lend you money.

That said, if you're working with a small budget or are going through tough financial times, making the minimum payment is perfectly fine as it will keep your account in good standing, which is extremely important to maintain a good credit score.

How to Make More Than the Minimum Payment On Your Credit Card?

You can make more than the minimum payment on your credit card by cutting back your spending on items that are not necessary and reallocating those funds to paying down your credit card. This allows you to pay down your credit card balances faster by making more than your minimum payment.

The second thing that you can do to pay more than the minimum payment is to freelance or get an additional job. This will help you allocate more money towards paying down the balances on your credit card to improve your credit score.

The third thing you can do to reduce your minimum payment and pay down your balances is to refrain from using your credit card until you've lowered the balance on it. This prevents you from adding to your credit card balance and helps your pay down your balance faster.

How is the Minimum Payment On Your Credit Card Calculated?

If you have a credit card balance below $1,000, you will probably see a minimum payment of $25. However, if you have a balance that exceeds $1,000, your minimum payment will likely be set at 2% of your balance. For example, if you have a $2,000 balance on your credit card, your credit card payment would be 2% of $2,000, which comes out to $40. In the event that you owe less than $25 on your credit card, the minimum payment will be set at the balance due. For example, if you only spent $15 on your credit card, your minimum payment will be set at $15.

Frequently Asked Questions (FAQs)

1. What happens to your credit score if you only make the minimum payment on your credit card?

Making the minimum payment on your credit card ensures that your account remains in good standing. However, only paying the minimum payment can increase your credit utilization since you're not significantly paying down your balance, increasing your credit utilization. An increase in credit utilization can lower your credit score, especially if you've exceeded 30% credit utilization.

2. Is it better to only make the minimum payment or pay your card in full?

It is better for your credit score to pay your credit card in full. Making a full payment results in a 0% credit utilization on your account, possibly raising your credit score.

3. What happens if you only pay the minimum payment on your credit card?

If you only make the minimum payment, your account is reported as paid on time. However, you will likely continue to carry a balance. If your credit card balance increases too much, your credit score could drop.

4. Does paying more than the minimum payment help your credit score?

Although merely paying more than the minimum payment does not boost your credit score. If you pay down a significant portion of your credit card balance, you should notice an improvement in your credit score.


What Happens To Your Old Credit Card When You Make a Balance Transfer?

If you've made a balance transfer to an old credit card, you may be wondering, what happens to your old credit card after making a balance transfer? We will explain this in much detail below.

What Happens To Your Old Credit Card When You Make a Balance Transfer?

When you perform a balance transfer from an old credit card to a new credit card, the card issuer of your new credit card moves your balance from your old card to your new credit card by paying off the balance on your old card and charging the amount to your new credit card plus the balance transfer fee.

Transferring your balance from an old credit card with high interest to a new credit card with a 0% introductory interest rate can be a great way to pay off your balance since you're only paying the principal. You're not being charged interest on the outstanding amount that's due.

That said, performing a balance transfer does not automatically close down your old credit card. The only thing that will happen is that your debt is paid off only if you were able to transfer over the entire amount that was due on the card.

Your ability to completely pay off your old car depends entirely on the credit limit of your new account. If your new account has a credit limit that's higher than the amount you want to transfer over, you will be able to transfer the entire balance to your new card. However, if your credit limit does not exceed the amount on your old car, you will not be able to transfer the entire balance to your new card.

Should You Close Your Old Credit Card After Making a Balance Transfer?

If you make a balance transfer that completely wipes out the debt on your old credit card, you will be able to close that credit card. But, the question then is whether you should close your old credit card? Before closing an old credit card that is in good standing, you should know the impact that closing a credit card has on your credit score.

Closing a credit card can potentially lower your credit score because it can increase your credit utilization, and whenever you increase your credit utilization, you will notice a drop in your credit score. Your credit utilization refers to how much of your available credit you're using, the lower your credit utilization, the better your credit score will be. Your credit utilization accounts for 30% of your credit score.

When you close down a credit card, you're reducing the amount of total available credit that you have thereby increasing your credit utilization. When your credit utilization increases, your credit score will drop. So, keeping an old account open may be worth it to keep your credit utilization as low as possible to keep your credit score as high as possible.

That said, if you want to close down your old credit card to prevent yourself from racking up more debt, then closing the account may be worth it. But, you should keep in mind that your credit score may drop as a result of closing down your old credit card.

Also, it's worth noting that closing down your old credit card does not remove it from your credit report. If you made all of your payments on time on your old credit card, it will remain on your credit report for 10 years from the date you close down your credit card.

However, if you've missed payments on your old credit card, it will remain on your credit report for 7 years from the date you missed your first payment on the card. After the 7 year period, it will automatically be removed from your credit report.

What Are Some Common Reasons For Transferring a Balance From An Old Credit Card to a New Credit Card?

Here are some common reasons for performing a balance transfer from an old credit card to a new credit card:

1. Reduce the Amount of Interest That You Pay

Most people perform balance transfers from an old credit card to a new credit card to take advantage of promotional interest rates to reduce the amount of interest they're paying. For example, if you have an old credit card with an interest rate of 17% and your new credit card has a promotional 0% interest rate for 12 months, it makes sense to transfer over the balance to your new card because you will not pay any interest on the balance for 12 months. This makes it significantly easier to pay down the balance on your credit card since you will avoid paying any interest on the balance for 12 months.

2. Debt Consolidation

If you open a balance transfer card that has a high credit limit, your new card can be used to consolidate debt from several credit cards onto a single balance transfer card. This makes it significantly more simple by allowing you to see all your debt on a single credit card. Also, it makes it easier to manage your debt. For example, instead of having three credit cards to manage, you can consolidate your debts onto a single credit card, enabling you to manage all of your debt by paying down one credit card.

3. Utilize Balance Transfer Card to Get Out of Debt

Since balance transfer cards often come with an introductory 0% APR that typically lasts for anywhere between six and twelve months, this can be a great opportunity for you to pay down your balances to get out of debt faster. That said, to benefit from a balance transfer card, you must resist the temptation of adding to your debt by charging items on your balance transfer card. Use the introductory period to pay down as much debt as you possible can.

How To Perform a Balance Transfer?

The first step to perform a balance transfer is to either using an existing card or open a new credit card that provides you with the ability to perform a balance transfer at an introductory 0% APR. If you don't have a credit card that permits balance transfers, look for a new card that does permit them. When searching for a good credit card, check to see how long the introductory 0% APR period lasts. Most credit cards offer anywhere from six months to eighteen months.

Once you have a balance transfer card, contact your card issuer to perform a balance transfer. That said, before performing a balance transfer, you should keep in mind that most card issuers charge a 3% to 5% fee of the total amount to be transferred. For example, if you want to transfer a balance of $10,000 from your old credit card to your new balance transfer card, your card issuer may charge you a 3% fee that comes out to $300 just for performing the balance transfer.

Once you know the fee and agree to it, perform your balance transfer by contacting your card issuer and providing them with the information they need to complete the balance transfer.

What Should You Do After Requesting a Balance Transfer?

After requesting to transfer your balance from an old credit card to your new credit card, you should keep the old account open and continue making timely monthly payments on your card until the balance is paid off. You should continue to make at least the minimum payment on your old credit card until the balance transfer goes through because your payments will still be due. Not making your payment on the due date could cause the account to become late, causing significant damage to your credit. After the balance transfer is complete, you have the option of either closing the card or keeping it open. If you want to maintain a high credit score, many experts suggest keeping old accounts that are in good standing open because they provide a boost to your credit score.

Frequently Asked Questions (FAQs)

1. Does a balance transfer close your old credit card?

No, a balance transfer does not close your old credit card. Your old credit card will remain open after transferring a balance from it to a new credit card. It is up to you to close your credit card after a balance transfer. That said, if you have a credit card that has been open for a long period of time and is in good standing, you should keep your card open for it to continue to have a positive effect on your credit score.

2. Can you use your old credit card after a balance transfer?

Yes, you can continue to use your credit card after a balance transfer. However, you should be aware that the introductory 0% APR may only apply to the balance transferred amount and not the entire balance on your new credit card.

3. What happens at the end of a balance transfer?

After you've transferred your balance to a new credit card, you must begin making payments on your new card. You should try to pay off your balance before the 0% APR introductory period ends. After the period ends you will be charged a significantly higher interest rate on the balance.

4. Do balance transfers hurt your credit score?

No, performing a balance transfer does not hurt your credit score. However, applying for a new balance transfer card can shave off a few points from your credit score since a hard inquiry will be added to your credit report when you apply for a balance transfer card.

5. How does a balance transfer work?

With a balance transfer, your card issuer will pay off the balance on a different credit card that you have. After the balance has been paid off, your card issuer will transfer the balance to your new credit card plus the balance transfer fee.


Does Carrying a Balance On Your Credit Card Help Your Credit Score?

If you're like most Americans, you likely have a credit card and you may be wondering whether carrying a balance on your credit card helps your credit score? We will answer this question in much detail below.

Does Carrying a Balance On Your Credit Card Help Your Credit Score?

Carrying a balance on your credit card does not help your credit score. In fact, carrying a balance on your credit card can actually hurt your credit score because it increases your credit utilization. Credit utilization refers to how much of your available credit you utilize. The more of your available credit you use, the lower your credit score will be. So, if you've been told that carrying a balance helps your credit, now you know that doing so does not, and can actually lower your credit score.

Keeping the balance on your credit card as low as possible is one of the best things that you can do to help your credit after making all of your payments on time. This is so because your credit utilization accounts for 30% of your credit score. The lower your credit utilization, the better your credit score will be. So, if you're considering leaving a balance on your credit card in hopes of raising your credit score, now you know that paying down your balances is one of the best things that you can to improve your credit score.

As a rule of thumb, you should strive to keep your credit utilization below 10% and never exceed 30% credit utilization. If you exceed 30% credit utilization, you will significantly lower your credit score. So, always pay off as much debt as you can afford to pay off. For example, if you have a total credit limit of $10,000, you should not allow your credit card balance to exceed $3,000.

Additionally, to help your credit score, you should make all of your payments on time. Your payments account for 35% of your credit score, so making them on time is the best thing you can do to boost your credit score. Missing even a single payment on your credit cards or loans can cause significant damage to your credit score. So, make sure to make all of your payments on time.

Some people believe that to keep their account active, they must keep a balance on their credit card. This is not the case. Using your credit card for small monthly payments is sufficient to keep your account from being closed for being dormant (unused).

So, if you were wondering whether carrying a balance on your credit card helps your credit score, now you know that it does not. You will just be paying interest for no reason. Therefore, if you have a credit card with a balance, pay it off if you can afford to do so because doing that will save you money on interest.

Why Should You Avoid Carrying a Balance On Your Credit Card?

1. Avoid Paying Interest On Your Credit Card Balance

You should pay down the balance on your credit card to avoid paying interest on your credit card balance. Credit cards often charge consumers high-interest rates on the balances they carry on their credit cards. Interest can be avoided by paying off the credit card in full at the end of your billing cycle. So, if you want to save money on interest, pay off your credit card at the end of each billing cycle.

2. Reduce Your Credit Utilization

You should avoid carrying a balance on your credit card to reduce your credit utilization (how much of your available credit you're using). Reducing your credit utilization is good for your credit score because it accounts for 30% of your credit score. The lower your credit utilization, the better your credit score will be. As a rule of thumb, you should keep your balances below 10% of your available credit and never use 30% or more of your available credit. If you utilize more than 30% of your available credit, you will significantly lower your credit score.

3. Prevent Yourself From Accumulating Too Much Debt

Paying off your credit card instead of carrying a balance allows you to stop yourself from accumulating too much debt. Spending and accumulating debt can happy quickly and while you least expect it. So, paying off your credit cards and avoid leaving a high balance on your credit card accounts.

What is a Good Balance to Carry On Your Credit Card?

Carrying no balance on your credit card is the best thing that you can do for your credit because the lower your credit utilization, the better your credit score will be. However, we know that life happens sometimes and it's not possible to pay off your credit card. As a rule of thumb, you should utilize no more than 10% of your available credit and never exceed 30% credit utilization. If you use more than 30% of your available credit, your credit score will drop.

For example, if you have credit cards with a limit of $10,000, you should keep the balances on your credit cards below $3,000 for the best impact on your credit score.

If you find yourself utilizing too much of your available credit, you should contact your card issuer and request a credit limit increase. If your request is approved, your credit limit will be increased, lowering your credit utilization. That said, before you request a credit limit increase, you should be aware that your card issuer may add a hard inquiry to your credit report when it reviews your credit report to make a decision on your request for a credit limit increase. Nevertheless, a single hard inquiry will only lower your credit score by a few points. Just don't ask for too many credit limit increases within a short period of time, and you should be good.

Bottom Line

The bottom line is that carrying a balance on your credit card is not good for your credit nor is it good for your credit score. One of the best things that you can do for your credit score is to pay off all the balances on your credit cards. This is so because the lower the dollar amount of your available credit you use, the better your credit score will be. So, the next time your close friend or relative tell you that carrying a balance improves your credit score, now you know that it does not improve it and could actually lower your score.


Can I Get a Credit Card Without a Job?

If you want a credit card and you don't have a job, you might be wondering you can get a credit card without a job. This post will provide you with everything you need to know about getting a credit card without having a job.

Can You Get a Credit Card Without a Job?

You can get a credit card without a job, but you must have a source of income to be approved for a credit card. This is so because the Credit Card Act requires lenders to consider your ability to pay back the money you're going to borrow on your credit card. Without any income, you will not be able to make your credit card payments on time.

So, if you're unemployed and you do not have a job, you may still qualify for a credit card, but you must have some income in order to be able to make the minimum payments on your credit card. In addition to having an income, when considering your credit card application, the credit card issuer will consider your credit score and existing debt.

That said, when it comes to calculating your income for getting a credit card without a job, you can include any household income that you can access. This includes your own income, self-employment income, your spouse's income, investment income, alimony income, unemployment income, retirement income, and many other types of income.

So, if you have any of these types of income, you should include them on your credit card application because your card issuer will consider them when determining whether to grant you a credit card.

When it comes to determining your credit limit, the card issuer will look at your income, any debts that you have, and your other payment obligations, such as your rent or mortgage. If you have too much debt, your card issuer may approve you for only a low credit limit. So, make sure to include all of your income to obtain the highest credit limit.

If you do not have sufficient income and your application for a credit card is denied, here are some other options that you should consider.

What Should You Do If You Can't Get a Credit Card Without a Job?

If you do not have a job, here are some alternatives that you should consider. These alternatives are easier to obtain than applying on your own for a regular unsecured credit card.

1. Secured Credit Card

If you applied for a regular credit card and did not get approved, you should consider applying for a secured credit card. Secured credit cards are significantly easier to be approved for than regular credits because you are required to make a security deposit to obtain the card. Typically, the security deposit you place with the card issuer determines your credit limit. For example, if you make a $500 security deposit, you will be issued a secured credit card with a $500 credit limit. Typically, you can make a security deposit as large as $5,000.

That said, secured credit cards work the same was do regular credit cards, and they can be a great tool for building your credit. Your secured credit card account status is reported to the credit bureaus the same way a regular credit card account is reported to the credit bureaus. So, making your payments on time can significantly improve your credit. However, don't miss any payments because missing even a single payment can cause significant damage to your credit.

2. Get a Credit Card With a Co-signer

Very few banks allow the practice, but some card issuers still offer consumers the ability to get a credit card with a cosigner. Ask a close friend or relative if they are willing to co-sign for a credit card with you. When you get someone to co-sign a credit card with you, the card issuer will consider both your income and the co-signers income, making it easier for someone who does not have a job to qualify for a regular unsecured credit card.

That said, you should be aware that if you miss payments on the credit card or you default, you will cause significant damage to not only your credit but also the co-signers credit. So, make sure the cosigner understands this before asking them to co-sign with you. This is so because both the primary account holder and the cosigner are responsible for the repayment of the debt.

After a quick internet search, Bank of America and U.S Bank still allow consumers to obtain a credit card with a cosigner.

3. Authorized User On Credit Card

If you weren't able to get a credit card because you do not have a job, you should consider becoming an authorized user on a relative's or close friend's credit card. By becoming an authorized user, you will be issued a credit card with your name on it and you can use the card just as you would a regular credit card. The only difference is that, as an authorized user, you are not liable for the debt incurred on the card. Instead, the primary account holder is liable for making payments on the card. Since the account status is going to be reported on your credit report, you should only ask someone to add you as an authorized user if you believe that he or she will make on-time payments on the card. If the primary account holder misses payments or defaults, negative items will appear on your credit report, as well.

Should You Get a Credit Card Without a Job?

Although you may be able to get a credit card without having a job, the question that presents itself is: should you? If you're unemployed but you have a source of income, it may be a good idea to get a credit card so that you can build your credit. However, if you're unemployed and have little income, it may not make sense to obtain a credit card because it is easy to fall into debt by overspending on your card without having sufficient money to pay off the balance.

Additionally, credit cards can be very expensive, so if you plan on leaving a balance on your credit card, you should take into consideration the interest you'll be paying on the money you've borrowed. Nevertheless, a credit card that is used properly can be a great tool for building your credit. Just make sure to make all of your payments on time because missing even a single payment can cause a significant drop in your credit score.

Even if you don't have a job, so long as you have some income, you may be approved for a credit card, if you're not approved, consider applying for a secured credit card, getting a cosigner, or adding yourself as an authorized user on someone else's credit card.

Does Getting a Credit Card While Being Unemployed Affect Your Credit Score?

Regardless of whether you're employed or unemployed, applying for a credit card always results in a hard inquiry being added to your credit report when the card issuer reviews your credit report. Although a single hard inquiry will only lower your credit score by a few points, applying for too many credit cards within a short period of time results in several inquiries being added to your credit report, significantly lowering your credit score.

Opening a new credit card account can increase your credit score because the added credit limit you obtain when opening a new card can decrease your credit utilization (how much of your available credit you're using). Additionally, opening a new card could increase your credit score because it increases the diversity of your accounts, commonly know as credit mix. The more types of accounts you have on your credit report, the better your credit score will be.

When you open a new credit card, for the best impact on your credit score, make sure to make all of your card payments on time. Missing even a single payment can cause significant damage to your credit. So, make all of your payments on time for your credit card to improve your credit score.

Does Being Unemployed Affect Your Credit Score?

No, being unemployed does not affect your credit score. In fact, your employment status does not appear on your credit report. Therefore, it has no impact on your credit. That said, not having a job can be considered by lenders and creditors when you apply for items, such as credit cards, personal loans, or auto financing. Lenders want to see that you have income in order to be able to pay off your debts.

Frequently Asked Questions (FAQS)

1. Do you need a job to get a credit card?

Although you do not need a job to get a credit card, you must have some income to be approved for one. This is so because federal law mandates that credit card issuers assess your ability to repay the money you're seeking to borrow before approving you. If you have no income, you have no way of repaying the money you want to borrow, and will therefore likely be denied.

2. Do credit cards require proof of income?

Although credit cards require that you have income, some card issuer will ask you for proof of income, while others will not. So, it all depends on your card issuer. Some card issuers just ask for your employment and salary without asking for proof, while others will require proof such as bank statements or pay stubs.

3. What is the minimum amount of income to get a credit card?

There is no set number for the amount of income that you must have to get a credit card. List the income that you're making and see if you're approved.

4. Can a student get a credit card without income?

If you're a student and you do not have any income, it will be difficult to obtain a credit card. You should ask a close friend or relative to cosign with you to obtain a credit card.


Should You Cancel Unused Credit Cards?

If you have too many credit cards, you might be wondering whether you should cancel your unused credit cards? This post provides you with everything you need to know about canceling unused credit cards.

Should You Cancel Unused Credit Cards?

You should not cancel unused credit cards because canceling them could cause your credit score to drop. Canceling your credit card could cause a credit score drop because it may increase your credit utilization, reduce your credit mix, and reduce your average account age. We will now explain the reasons why you should not cancel credit cards even if you do not use them in more detail below.

Canceling an unused credit card could increase your credit utilization because when you close a credit card account, you're losing the credit limit associated with your account. If you carry balances on your credit cards, you will increase your credit utilization. An increase in credit utilization can potentially lower your credit score.

Your credit utilization (how much of your available credit you're using) accounts for 30% of your credit score. The lower your credit utilization, the better the impact of this factor will be on your credit score.

For example, if you have 2 credit cards, one credit card with a $10,000 credit limits and a second credit card with a $5,000 credit limit. If you have a balance of $3,000 on your first credit card and a $0 balance on your second credit, you're utilizing 20% of your total available credit. However, if you close your second credit card with a $5,000 limit, you will now be utilizing 30% of your total available credit, which can significantly lower your credit score.

As a rule of thumb, you should strive to keep your credit utilization as low as possible for the best impact on your credit score. Experts agree that you should keep your credit utilization below 10% and never exceed 30% credit utilization. Using more than 30% of your available credit will cause a significant drop in your credit score.

The second reason you should not cancel or close an unused credit card is that it has the potential to reduce your credit mix, also known as the diversity of your accounts. If this is your only credit card, closing it could reduce your credit mix. Your credit mix accounts for 10% of your credit score, so closing a credit card account can potentially reduce your mix of credit, lowering your credit score. So, for the best impact on your credit score, you should avoid closing unused credit cards.

The third reason you should avoid closing an unused credit card is that it can reduce the average age of your accounts. The average age of all of your accounts makes up 15% of your credit score. So, the older your accounts, the better of an impact this factor will have on your credit score. Closing down a credit card reduces the average age of your accounts. So, for the best impact on your credit score, you should keep old accounts open for longer, especially if they have a positive payment history associated with them.

Conclusion - Keeping your old credit card accounts open by charging small amounts on them and making payments in full can do wonders for your credit score because it allows you to keep your credit utilization low, it diversifies the types of accounts that you have, and it contributes to an older account age. These are all great things for your credit score.

CSP Pro Tip - If you have a credit card that you rarely use, you should use it for small purchases and make payments on it to avoid having the account shut down for being dormant.

How Does Cancelling An Unused Credit Card Affect Your Credit Score?

Cancelling an unused credit card or credit card that you rarely use can negatively affect your credit score for a number of reasons.

First, canceling an unused credit card can result in a higher credit utilization (how much of your total available credit you're using). Higher credit utilization can lower your credit score, especially if closing your credit card results in a credit utilization of 30% or more. As a rule of thumb, you should keep your credit utilization below 10% and never exceed 30%. Exceeding 30% credit utilization can significantly lower your credit score. So, consider whether closing your credit card would increase your credit utilization prior to closing your account.

Second, closing an unused credit card can slightly lower your credit score because it may reduce the diversity of your account. Your credit diversity, also known as credit mix, accounts for 10% of your credit score. Whenever you close an account, you can potentially reduce the diversity of your accounts, lowering your credit score. So, if this is your only credit card, you should avoid closing it for your credit mix factor to have the best impact on your credit score.

Third, canceling an unused credit card will reduce the overall age of your accounts. Your account age makes up 15% of your credit score. The older your accounts, the better this factor will impact your credit score. So, to increase your account, you should keep old accounts that are in good standing open for longer, meaning you shouldn't close your credit card account for this impact on your credit score.

What Should You Do With Your Unused Credit Card Instead of Cancelling It?

If you have an unused credit card and you're debating whether to keep your credit card open or close it, we will share some things that you can do with your unused credit card instead of cancelling it.

The best way to make use of a rarely used credit card is to use it as a card for making some of your monthly recurring payments. For example, you can use it to make automatic monthly payments for your cell phone bill, Netflix subscription, cable subscription, and other recurring monthly bills. This keeps your account active and avoids having the account being canceled by your card issuer for being dormant (unused).

That said, make sure to set up payment reminders to make your credit card payments on time. Missing even a single payment on your credit card account can cause significant damage to your credit score. Continuing to use your credit card responsibly and making on-time payments will further boost your credit score.

When Does It Make Sense To Cancel An Unused Credit Card?

It makes sense to cancel an unused credit card if you're paying a high annual fee on your credit card and you're not taking full advantage of the perks and rewards offered by your credit card. That said, you should keep the negative consequences to your credit score in mind before closing an unused credit card.

For example, if you know that you're going to be making a large purchase, such as buying a home or financing a vehicle in the near future, you should hold off on canceling your unused credit card as it will likely cause a drop in your credit score. After making your purchase, then close the credit card if you see that's the correct course of action.

How to Properly Cancel and Close Unused Credit Card Accounts?

If you've determined that closing your credit card is something that you want to do, here is how you can properly close your credit card account so you don't run into any trouble.

  1. Cancel all of the automatic payments being charged onto your account
  2. Pay off the balance on your credit card, leaving a $0 balance on the card
  3. Contact your credit card issuer and confirm that the balance on your credit card is at $0
  4. Ask them to cancel the credit card
  5. Ask your card issuer to follow up with a letter or email confirming that the account has been closed with a $0 balance

CSP Pro Tip - If you want to cancel multiple credit cards, it's best if you do not cancel all of them within a short period of time, space out the closure over a course of several months. This will help you avoid a large increase in your credit utilization. You should keep credit cards with high limits open so that you can benefit from a low credit utilization rate.

Closing An Unused Credit Card Without Hurting Your Credit Score

There is a way to cancel an unused credit card without hurting your credit score, but for this method to work, you must have two credit cards with the same card issuer. For example, if you have two Bank of America Credit Cards, and for some reason, you want to close one of your accounts, you can ask your financial institution to transfer over the credit line from one of your cards to the other card.

This prevents the closure of your account from increasing your credit utilization since you're shifting the credit limit that would have been lost to another credit card.

For example, if you have two credit cards with Bank of America, one with a $5,000 credit limit and a second card with a $4,000 credit limit. You can ask them to transfer over your $4,000 credit limit to your credit card with a $5,000 credit limit, giving you a total of $9,000 credit limit on a single credit card after canceling the second card. This way there will be no increase in your credit utilization.

The Bottom Line

For the best impact on your credit score, you should keep old credit cards open. You should avoid closing them to keep your credit score as high as possible. This is especially true if you plan on making major purchases in the near future, such as financing a vehicle or even taking out a loan to buy a home. So, consider the consequences of closing an unused credit card vs the benefits, and then make your decision. If you have any general questions or comments, please feel free to leave them in the comments section below.

Frequently Asked Questions (FAQs)

1. Why should you avoid canceling unused credit cards?

You should avoid cancelling unused credit cards because it can potentially increase your credit utilization, reduce your credit mix, and reduce the overall age of your accounts, which can all lower your credit score. For the best impact to your credit score, you should keep old account even if they're not used very often open.

2. Do unused credit cards affect your credit score?

Yes, unused accounts in good standing can positively affect your credit score. So, even if you rarely use them, you should keep them open for the best impact to your credit score.

3. Is it bad to have a credit card that you rarely use?

There is nothing wrong with having a credit card that you rarely use. However, you should keep in mind that if you do not use your credit card for a long period of time, your card issuer may consider the account as dormant, and may therefore either lower your credit limit or close your credit card.

4. What is the major disadvantage of closing an unused credit card?

The major disadvantage of closing a credit card is that it can potentially increase the amount of total available credit that you're using, lowering your credit score.


What Happens If I Apply For a Credit Card and Get Denied?

If you applied for a credit card and your application was denied, you might be wondering, what happens after you denied for a credit card? We will provide you with everything you need to know about what happens after you apply for a credit card and get denied.

What Happens If I Apply For a Credit Card and Get Denied?

If you apply for a credit card and you get denied, nothing negative will be added to your credit report. However, a hard inquiry will be placed on your credit report regardless of whether you're approved or denied a credit card. A single hard inquiry will only lower your credit score by a few points. Hard inquiries remain on your credit report for 2 years from the date that you applied for a credit card. If you're denied, the credit card issuer is legally obligated to send you a letter known as an adverse action letter, explaining to you why you were denied the credit card you applied for.

Here are some common reasons why you may have been denied the credit card you applied for:

1. Negative Information - There may negative information on your credit report, such as missed payments, repossessions, or bankruptcy making it difficult for the lender to approve you for a credit card.

2. Limited Credit History - You may have been denied a credit card because you have little credit history. Typically, lenders like to see that you have aged open accounts that are in good standing to approve you for a credit card. So, if you're applying for a credit for the first time, it's likely that you have what is known as a thin credit file, making it difficult for the lender to approve you. This is so because lenders want to make sure that you're likely to repay your debts on time, and with no history, they have no assurance that you'll make your payments on time.

3. High Credit Utilization - If you have open credit cards with high balances, this means that you're likely using too much of your available credit. Card issuers and banks do not want to lend money to people who have too much debt. Too much debt means there is a large likelihood that you'll default on your monetary obligations, and so it's a common reason for being denied a credit card. Typically, you should only utilize 10% of your available credit and never exceed 30% utilization. If you use more than 30% of your available credit, not only are your chances of being denied for a credit card high, but the high utilization could also lower your credit score.

4. Too Many Credit Card and Loan Applications - If you've submitted too many credit card and loan applications within a short period of time, this may be grounds for denial of a credit card. This is so because every time you submit a credit card or loan application, a hard inquiry is added to your credit report, alerting future lenders and creditors that you've recently been seeking credit. Lenders and credit card issuers do not like to see too many credit applications within a short period of time because it indicates that you're actively seeking credit, which may signify financial difficulty. Lenders only want to lend money to people who can pay back the money they borrow.

5. Late Payments - If you have late payments on your credit report, this may be the reason you were denied a credit card. This is so because lenders want to lend money and issue credit cards to persons who will pay on time. If you have late payments on your credit report, this shows lenders that you have failed to honor your obligation to make your payments on time, making it less likely for them to lend you money. The more recent the late payment, the more likely it is that you will be denied a credit card.

What Should You Do If You Applied for a Credit Card and Got Denied?

If you applied for a credit card and were denied, it's very difficult to be approved for the credit card you applied for. You can try to contact the card issuer and ask them to consider other sources of income that you did not include in your credit card application, such as alimony, child support, and other sources of income. But, doing so is unlikely to change the decision of the card issuer.

Additionally, if you have other credit cards with the card issuer you applied with, you can ask the card issuer to shift some of your other credit lines to the new credit card you applied for. Some card issuers will be willing to do this because they're not taking on additional risk by simply moving some of your existing credit lines to a new credit card. That said, your credit line on a different credit card will be cut short as it's used on another credit card.

That said, if you ask the card issuer to reconsider your credit card application and the reconsideration is unsuccessful, you shouldn't rush to apply for another credit. Submitting too many credit applications within a short period of time will make it very difficult to be approved for a credit card. Instead, you should focus on improving your credit score by paying down your account balances, making your payments on time, and keeping old accounts open and in good standing.

After you've improved your credit for three to six months, you should only then submit a credit card application for a credit card that you're reasonably likely to be approved for. Check the requirements for the credit card you want to apply for before applying. If your credit score falls within the card issuer's requirements, submit an application, but if the card requires a higher credit score than yours, you should refrain from applying. This saves you from an unnecessary hard inquiry from being added to your credit report.

Does Applying for a Credit Card and Getting Denied Hurt Your Credit Score?

Merely getting denied for a credit card will not hurt your credit score as no negative information is added to your credit report for being denied. However, whenever you apply for a credit card, a hard inquiry is added to your credit report regardless of whether you're approved or denied for the credit card. That said, a hard inquiry will only lower your credit score by only a few points (3 to 5 points). The impact a hard inquiry has on your credit score will lessen as the hard inquiry ages. Experts agree that a hard inquiry only impacts your credit score for 12 months, and after 2 years, hard inquiries are removed from your credit report automatically. If a hard inquiry remains on your credit report for more than 2 years, you can file a dispute with the credit reporting bureau showing the hard inquiry to have it permanently removed from your report.

How To Improve Your Credit Score Before Applying For Another Credit Card?

There are a number of things that you can do to improve your credit score before applying for another credit card, here are some of those things:

1. Payments - Make your credit card and loan payments on time. Your payment history has the biggest impact on your credit score because it accounts for 35% of your credit score. So, making your payments on time will help you maintain and improve your credit score. Missing even a single payment can cause a significant drop in your credit score. You can ensure that your monthly payments are made on time by setting payment reminders and automatic payments.

2. Account Balances - Reducing the balances (amount owed) on your credit cards, student loans, personal loans, and other types of debt will improve your credit score. This is so because your credit utilization accounts for 30% of your credit score, so paying down your balances will boost your credit score.

3. Credit Applications - If you want to improve your credit score to qualify for a credit card in the future, you should refrain from submitting too many credit applications within a short period of time. Hard inquiries account for 10% of your credit score, so reducing credit applications will improve your credit score. Also, lenders do not like to see that you've been applying for too many credit cards or loans as it indicates that you're actively seeking credit. So, keep credit card and loan applications to a minimum. As a rule of thumb, you should have no more than 2 to 3 hard inquiries on your credit report for the best chances of being approved.

4. Old Accounts - You should keep old accounts that are in good standing open because they have a positive impact on your credit score. Even if you rarely use your old account, keep it open for the best impact to your credit score.

5. Credit Report - You should frequently review your credit report. Periodically reviewing your credit report can uncover hidden negative items on your credit report. It is not uncommon to find negative information impacting your credit, such as a collection account that you had no idea about. So, check your credit report and address any negative items on your credit report.

Bottom Line - What Happens If You Get Denied For a Credit Card?

If you get denied a credit card or your credit card application is not approved, no negative information will be reported on your credit report. However, a hard inquiry is placed on your credit report regardless of whether you're approved or denied for the credit card. That said, you should space out credit card applications for the best chances of being approved.


Can You Be Denied a Secured Credit Card?

If you have applied for a secured credit card, you may have been surprised if you got denied, and may be wondering: can you be denied a secured credit card? We will answer this question in much detail below.

Can You Be Denied a Secured Credit Card?

Yes, you can be denied a secured credit card because credit card issuers often review your credit report prior to approving you. If your credit report contains red flags, such as a history of missed payments, bankruptcy, collection accounts, insufficient income, or other negative items, you may be denied a secured credit card. Card issuers have requirements even for people applying for secured credit cards. If you meet the requirements of income, credit score, and existing debt, you will be approved, if not, you may be denied.

That said, if your secured credit card application was denied there are some steps that we will share with you that will improve your chances of being approved later.

So, if you were denied a secured credit card, you should search for a different secured credit card with a higher approval rate. Not all secured credit card issuers check your credit, so if there are negative items on your credit report, search for secured credit cards that do not require a credit check.

That said, most secured credit card issuers will require your name, address, social security number, and a security deposit for the secured credit card. If you cannot provide all of this information, you are unlikely to qualify for a secured credit card.

Generally speaking, secured credit cards are significantly easier to be approved for since you're eliminating the risk the credit card issuer is taking when you place a security deposit for the card. Typically, your security deposit determines your credit limit. For example, if you place a security deposit of $500, your credit limit will be equal to your security deposit ($500).

Also, when you're denied a secured credit card, your card issuer is required by law to send you an adverse action notice explaining why the information in your credit report resulted in you being denied. Oftentimes, this is provided via a letter in the mail, an email, or via a phone call.

Knowing why you were denied shows you the weakness in your credit report that resulted in your denial, allowing you to take steps to improve the weaknesses of your credit.

Why Was Your Secured Credit Card Application Denied?

Here are some reasons why your secured credit card application was denied:

  1. Ability to Repay Debt - To be approved for any credit card, including a secured credit card, you as the application, must demonstrate that you have the ability to repay the money you're going to borrow on your credit card. This means having sufficient income to repay your debt. If you do not have sufficient income to repay your debt, your secured credit card application will be denied.
  2. Insufficient Funds For the Deposit - Your secured credit card application may have been denied if you did not provide the card issuer with sufficient funds for the security deposit. Security deposits are usually mandatory for secured credit cards. If you do not have the funds for a secured credit card, you should save up for the security deposit as you must pay it before a credit card is issued to you. Your security deposit will determine your credit limit.
  3. Negative Items On Credit Report - Your secured credit card application may have been denied because there are negative items on your credit report, such as missed payments, collections accounts, bankruptcy, or other negative items that disqualified you from being approved for a secured credit card.
  4. Extremely Low Credit Score - Although secured credit cards are marketed and cater to persons with bad credit, your credit score may be too low to qualify you for a secured credit card. If this is the case, you should try applying for a secured credit card that does not require a credit check.

What Should You Do If Your Secured Credit Card Application is Denied?

Here are some things that you can do if your secured credit card application is denied or rejected:

1. Apply For a Secured Credit Card With Your Own Bank

If you have a checking and/or savings account with a bank that issues secured credit cards, you may want to try applying for a secured credit card with that bank. Having a good relationship with your bank can improve your approval odds. If your bank denies your secured credit card application, you should try applying for a secured credit card that has more flexible approval requirements, or you can try applying for a secured credit card with your local credit union. Credit unions are non-profit organizations and therefore have more flexible standards than major banks and card issuers.

2. Find a Different Secured Credit Card

If you were denied a secured credit card, you may want to try finding a different secured credit card that does not require a credit check or a secured credit card with lower approval requirements than the one you applied for.

3. Become An Authorized User

If your secured credit card application was denied, you should explore the alternative of becoming an authorized user on another person's credit card. When you become an authorized user, the primary cardholder's card issuer will provide you with a credit card with your name on it. This credit card is linked to the primary cardholder's account, and the primary account holder is responsible for making payments on the account. As an authorized user, the credit card will appear on your credit report along with the credit history behind the card. So, if the card has a good history, you will benefit from that credit history.

4. Improve Your Credit

If you have been a secured credit card or any other type of credit card, you should improve your credit by making all of your payments on time, reducing the balances on your accounts, refraining from sending too many credit card and loan applications within a short period of time, keeping old accounts, and periodically reviewing your credit report. If you follow these tips, you will improve your credit, creating better approval odds for credit cards and loans in the future.

5. Credit Builder Loans

If your secured credit card application was rejected and you need access to money and tools to build your credit, you should explore the option of applying for a credit builder loan. With a credit builder loan, the proceeds of the loan are deposited and held in a bank account while you make payments on the loan. After you've repaid the loan in full, you will gain access to the funds. Credit builder loans are a great tool to build credit in order to qualify for secured and regular credit cards in the future.

How Does a Secured Credit Card Work?

A secured credit card works the same was as does a regular unsecured credit card. The only major difference between the two is that to be approved for a secured credit card, a person must place a security deposit in the form of a cash payment to be approved for the credit card. The security deposit that's placed with the card issuer usually determines the person's credit limit. For example, if you place a $500 security deposit, you will be issued a secured credit card with a credit limit of $500.

Secured credit cards are marketed to those who have poor credit or are beginning to build their credit. However, approval for secured credit cards is not guaranteed, especially for secured credit cards where card issuers review your credit report. If you're having trouble finding a secured credit card, search for a secured credit card that does not require a credit check. This is especially helpful if there are negative items on your credit report that may subject you to be being denied for one.

If You Were Denied a Secured Credit Card, Improve Your Credit Score Before Applying Again

  1. Payments - If you want to improve your credit score after being rejected for a secured credit card, the biggest item that will help your credit is your payment history. Making all of your credit card and loan payments on time is essential to improve your credit score as it accounts for 35% of your credit score. A single missed payment can cause a significant drop in your credit score, so make sure to make all of your payments on time.
  2. Account Balances - Your credit utilization (how much of your available credit you're using) accounts for 30% of your credit score, so reducing the balances on your credit card and loan accounts will improve your credit score. Reducing your account balances will improve the possibility that you'll be approved for secured credit cards and regular credit cards.
  3. Hard Inquiries - Keeping hard inquiries to a minimum will help your credit score as hard inquiries are factored into your credit score. So, do not apply for credit cards or loans that you do not need or are unlikely to be approved for. This minimizes the number of hard inquiries on your credit report to help your credit score.
  4. Old Accounts - Keeping old accounts that are in good standing open will help your credit score because your account age impacts your credit score. So, if you have an old account that has a good credit history, keep it open even if you rarely use it.
  5. Review Credit Report - If you're not already in the habit of periodically checking your credit score, you should be to uncover any negative items that are hurting your credit score. If you find negative items, this presents a good opportunity to address the negative item to reduce its impact on your credit score. If the negative item does not belong to you, you should dispute it to have it removed from your credit report.

Bottom Line

At this point, you know that you can be denied a secured credit card if you do not have the necessary income to pay off the card, if your credit report contains negative information, or if you do not have required credentials to verify your identity. If you have any questions or comments, please feel free to leave them in the comments section below.


Does Lowering Your Credit Limit Affect Your Credit Score?

If you have too high of credit limits on your credit cards that you don't take advantage of, you might be wondering whether lowering your credit limit affects your credit score? We will discuss the answer to this question in much detail below.

Does Lowering Your Credit Limit Affect Your Credit Score?

Yes, lowering your credit limit can negatively affect your credit score because it may increase your credit utilization. Your credit utilization accounts for 35% of your credit score. Whenever your credit utilization increases, your credit score is negatively impacted. So, if you have a high credit limit, do not lower your credit lines for the best impact on your credit score. Of course, sometimes, credit limit decreases are not always in your hand as some card issuers may lower your credit limit without asking you.

Lowering your credit limit can negatively affect your credit score because doing so increases the amount of available credit you're using. For example, if you have a $2,000 balance on your credit card that has a limit of $10,000, you're utilizing 20% of your credit limit, which is good for your credit score.

However, if for example, you lower your credit limit to $5,000, you're now utilizing 40% of your available credit, which will lower your credit score. As a rule of thumb, you want to keep your credit utilization below 10% and never to exceed 30%. In the example above, lowering your credit limit, increases your credit utilization, negatively affecting your credit score.

So, if you have a high credit limit and you leave a balance on your credit cards, do not lower your credit limit. It's good to have a lot of available credit that you're not utilizing because it lowers your credit utilization rate, which is good for your credit score.

Nevertheless, if you know that having a high credit limit tempts you to spend too much, you may benefit from lowering your credit limit to stop yourself from overspending. But, you should know that lowering your credit limit can potentially decrease your credit score, so please proceed with caution with before doing so.

Also, you should be aware that credit scoring models consider not only the credit limit and credit utilization of a single account, but look at the total credit limit of all of your credit cards. For example, if you have 3 credit cards, each with a $5,000 credit limit, credit scoring models look at your total credit limit of $15,000 and how much of your total credit you're utilizing.

Who Decides What Your Credit Limit Is?

Your initial credit limit is determined by your income, your credit score, your payments history, and your creditworthiness. Typically, the better your credit score and the more income you have, the higher your credit limit will be. Credit card issuers typically review your account every 6 to 12 months. If you're using your credit card frequently and you're making your payments on time, your card issuer may raise your credit limit to give you room to spend money on the credit card.

However, if you're not using your credit responsibly and you're missing payments or making payments past the due date, your card issuer may lower your credit limit. If a card issuer reduces your credit limit, your credit score may be negatively impacted because doing so increases your credit utilization (how much of your available credit you're using).

What Are Some Common Reasons For Lowering Your Credit Limit or Line of Credit?

Here are some common reasons why your card issuer may lower your credit line:

  1. Rare Use of Credit Card - If you have a credit card that you rarely use or charge only small amounts on, it should come as no surprise that your card issuer lowered your credit limit. Also, if your spending habits change drastically and suddenly, your card issuer may reduce your line of credit to limit their risk.
  2. Credit Score Drop - If you have a significant drop in your credit score, this could cause your lenders to lower your credit limit as a significant drop often signifies that something negative has been added to your credit reports, such as a missed payment, repossession, collection account, or other negative items.
  3. Missed Payment(s) - If you do not make at least your minimum payment on time, your card issuer may reduce your credit limit to limit its exposure. This is so because making late payments tells the lender that you're going through financial difficulty that's making it difficult for you to repay your debts on time. In this case, your card issuer may reduce your credit limit to stop you from racking up debt that you will be unable to pay back.
  4. Change in Income - Card issuers will periodically ask you to verify your income. If your income becomes lower, your card issuer may reduce your credit limit because you do not have sufficient income to make payments on your credit card.
  5. Tough Economic Times - In tough economic times, card issuers may lower the credit limits of many customers to protect themselves from borrowers who are likely to default on their debts. This is so because, during times of economic hardship, borrowers are likely to rely on their credit cards to get through tough times. The opposite is also true. During good economic times, lenders are likely to extend credit to borrowers because they pose little risk of default.

What Are Your Options If You've Had Your Credit Limit Lowered?

Here are some of your options if you've had your line of credit lowered or decreased:

  1. Contact Your Card Issuer - If you've had your credit limit decreased, you should contact your card issuer or bank and ask them for the reason they lowered your line of credit. Ask them if it's possible to have your previous (higher) credit limit reinstated. If your card issuer refuses to reinstate your previous credit limit, ask them why it is lowered and work on improving the area that caused your credit limit to be lowered.
  2. Reduce Your Balances - Oftentimes, if your credit utilization (how much of your available credit you're using) is too high, your card issuer may lower your credit limit to stop you from charging too much to keep your payments manageable. If this happens to you, reduces your credit utilization by paying down the balances on your credit cards. Reducing your balances will also improve your credit score as your credit utilization accounts for 30% of your credit score. The lower your balances, the better your credit score will be. Additionally, paying down your balances could save you a significant amount of money paid in interest on the balances. So, paying down balances is a win-win situation for most.
  3. Credit Limit Increase On a Different Card - If you've had your line of credit decreased, you should try asking a different card issuer to increase your credit limit. Increasing your overall credit limit helps your credit score.
  4. Apply For a New Credit Card - If you've had your credit limit lowered, and you want to increase your credit limit, you can always apply for and open a new credit card. Opening a new credit card adds to your total credit limits, boosting your credit score. Of course, opening a new credit card requires a credit check in most cases and results in a hard inquiry being added to your credit report. So, only apply for a credit card that you're reasonably likely to be approved for.

Can You Anticipate When Your Card Issuer May Lower Your Credit Limit?

It is very difficult to tell when a card issuer or lender will lower your credit score. Oftentimes, it happens suddenly, and you will only know that your credit limit has been lowered after receiving a letter from your card issuer informing you that your credit limit has been decreased. A credit limit decrease can raise your credit utilization and therefore lower your credit score. Card issuers can raise or decrease your credit limit as they see fit, curbing your spending power when they see fit. Most often, credit limit decreases are performed when card issuers feel that a cardholder is seen as too risky to lend money to. Also, in tough economic times, banks may decrease your credit limit to limit their exposure amid economic uncertainty.

Here are some common reasons your card issuer may have lowered your credit limit:

  1. Your spending habits have changed, making you a risky borrower
  2. Your credit score has significantly changed
  3. There is new negative information on your credit report
  4. You've become the victim of identity theft

Frequently Asked Questions (FAQs)

1. Is it a good idea to reduce your credit limit?

It's almost never a good idea to reduce your credit limit because the higher your credit limit, the less credit utilization you will have. The less credit utilization you have, the better your credit score will be. So, if you have a high credit limit, you should not reduce it.

2. Does having a high credit limit affect your credit score?

Having a high credit limit can affect your credit score, but it really depends on whether you leave balances on your credit cards. If you leave a balance on your credit cards, having a high credit limit will positive affect your credit score because it decreases your credit utilization (how much of your available credit you're using). The lower your credit utilization, the better your credit score will be.

3. How can I raise my credit score?

You can raise your credit score by making all of your payments on time, reducing the balances on your accounts, refraining from submitting too many credit card or loan applications, keeping old accounts in good standing open, and avoiding having negative items from being added to your credit report.

4. Should I reduce my high credit limit if I don't use it?

Even if you have a high credit limit, you should not reduce it. This is so because the higher your credit limit, the less your credit utilization will be. So, if you leave a balance on your credit cards, you will benefit greatly from having a high credit limit.