Will Lowering My Credit Card Limit Hurt My Credit Score?

Photo by TierneyMJ / Shutterstock.com

Welcome to the “2-Minute Money Manager,” a short video feature answering money questions submitted by readers and viewers.

Today’s question is about credit scores; specifically, whether lowering your credit limit could hurt your credit score.

Watch the following video, and you’ll pick up some valuable info. Or, if you prefer, scroll down to read the full transcript and find out what I said.

You also can learn how to send in a question of your own below.

For more information, check out “7 Ways to Boost Your Credit Score Fast” and “How I Got a Perfect Credit Score in 4 Steps” You can also go to the search at the top of this page, put in the words “mortgage” or “credit union” and find plenty of information on just about everything relating to this topic.

And if you need anything from tips on finding help with debt to finding the best financial advice, be sure and visit our Solutions Center.

Got a question of your own to ask? Scroll down past the transcript.

Don’t want to watch? Here’s what I said in the video

Hello, and welcome to your “2-Minute Money Manager.” I’m your host, Stacy Johnson, and this answer is brought to you by Money Talks News, serving up the best in personal finance news and advice since 1991.

Today’s question comes from Felicia:

“I recently paid off a credit card with a limit of $10,000, and asked the credit card company to lower my limit to $2,000. Will this hurt my FICO score?”

OK, Felicia, let’s discuss.

The short answer to your question, Felicia, is yes, it could. But unless you’ll soon be in the hunt for a mortgage or other loan, it may not matter all that much.

Let’s take a look at the logic behind that answer. It has to do with your “credit utilization ratio.”

Higher credit utilization ratio = lower credit score

“Credit utilization ratio” is a $2 term for a 50 cent concept. It’s simply the amount of credit you’re using compared to how much you have available. For example, if you’ve got a credit card with a $10,000 limit, and your balance is currently $3,000, you’re using 30% of your available credit. So, your credit utilization ratio is 30%.

The most widely used credit score, the FICO score, penalizes those using too much of their available credit. This makes sense: Nobody wants to lend money to someone up to their eyeballs in debt. So, keeping your credit utilization ratio low by not using all your available credit is a good idea.

Most experts suggest keeping your credit utilization ratio under 30%.

So, now that we know that, it’s time to ask Felicia a question: Are you going to continue using your credit card? If so, will you be charging more than $600 on it? That’s 30% of your $2,000 credit limit. If you’re going to carry a balance of more than $600, your credit utilization ratio will be more than 30%, and that could ding your credit score.

Keep in mind that it may not matter if you pay your card off at the end of the month. Since your credit score could be pulled randomly at any time, merely having a balance bigger than $600 could theoretically hurt your score.

How much damage would it do? Utilization ratios, along with the total amount you owe, make up about 30% of your credit score. So, that’s a pretty big deal. Other things included in your score are the length of your credit history, your credit mix and, of course, your payment history.

But now I need to ask Felicia another question: Felicia, why did you lower your credit limit? If the answer is, “No reason, really,” then I’d probably suggest she move it back up to $10,000 and keep her utilization ratio as low as possible.

But what if Felicia said, “The reason I lowered it is because that high limit got me into a bunch of debt trouble. I don’t ever want that to happen to me again.”

If that’s the case, I’d say to keep your limit where it is and simply try not to use your card. Why? Because being in too much debt sucks. And if you find you can’t handle the temptation of a $10,000 credit line, fine. Screw all this nonsense. Do what you need to do to protect yourself.

Hope that answers your question, Felicia. Now, what about you? Got a question of your own to ask? Then do what Felicia did: Simply hit “reply” to any Money Talks email newsletters and fire away. I can’t answer every question, but I do my best.

And if you’re not getting our newsletter? Fix that right now by going to Money Talks News and subscribing. It’s free, takes five seconds and will absolutely, positively make you richer.

I’m Stacy Johnson. See you here next time!

Got a question you’d like answered?

You can ask a question simply by hitting “reply” to our email newsletter, just as you would with any email in your inbox. If you’re not subscribed, fix that right now.

The questions I’m likeliest to answer are those that come from our members. You can learn how to become one here. Also, questions should be of interest to other readers. In other words, don’t ask for super-specific advice that applies only to you. And if I don’t get to your question, promise not to hate me. I do my best, but I get a lot more questions than I have time to answer.

About me

I founded Money Talks News in 1991. I’m a CPA, and I’ve also earned licenses in stocks, commodities, options principal, mutual funds, life insurance, securities supervisor and real estate.

Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.

Read Next
13 Smart Tricks to Organize Every Room of Your Home
13 Smart Tricks to Organize Every Room of Your Home

Get your household organized with these brilliant and inexpensive tricks.

10 Common Ways Seniors Get Scammed
10 Common Ways Seniors Get Scammed

Here’s what to watch for to make sure you don’t fall prey to some of the biggest rip-offs targeting seniors.

17 Amazon Finds Under $20 That Will Organize Your Life
17 Amazon Finds Under $20 That Will Organize Your Life

We’ve rounded up must-have products to help you get your ducks in a row.

9 Affordable Products That Could Save Your Life
9 Affordable Products That Could Save Your Life

Some of these products you may already own. Others you’ll want to order from Amazon ASAP.

10 Purchases You Should Not Put on a Credit Card
10 Purchases You Should Not Put on a Credit Card

Credit cards offer many conveniences and protections, but sometimes it’s simply smarter to keep the plastic tucked away.

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Most Popular
9 Things You’ll Never See at Costco Again
9 Things You’ll Never See at Costco Again

The warehouse store offers an enormous selection, but these products aren’t coming back.

11 Things Retirees Should Always Buy at Costco
11 Things Retirees Should Always Buy at Costco

This leader in bulk shopping is a great place to find discounts in the fixed-income years.

Over 50? The CDC Says You Need These 4 Vaccines
Over 50? The CDC Says You Need These 4 Vaccines

Fall is the time to schedule vaccines that can keep you healthy — and even save your life.

11 Household Items That Go Bad — or Become Dangerous
11 Household Items That Go Bad — or Become Dangerous

When you get the impulse to stockpile these everyday items, pay close attention to their expiration dates.

8 Things You Can Get for Free at Pharmacies
8 Things You Can Get for Free at Pharmacies

In this age of higher-priced drugs and complex health care systems, a trip to the pharmacy can spark worry. Freebies sure do help.

7 Ways to Boost Your Credit Score Fast
7 Ways to Boost Your Credit Score Fast

Your financial security might soon depend upon the strength of your credit score.

These Are the 4 Best Medicare Advantage Plans for 2020
These Are the 4 Best Medicare Advantage Plans for 2020

Medicare Advantage customers themselves rate these plans highest.

The 10 Most Commonly Stolen Vehicles in America
The 10 Most Commonly Stolen Vehicles in America

A new model parks atop the list of vehicles that thieves love to pilfer.

This Is the Cheapest Place to Buy a Used Car
This Is the Cheapest Place to Buy a Used Car

Looking for a good deal on a set of wheels? This should be your first stop.

19 High-Paying Jobs You Can Get With a 2-Year Degree
19 High-Paying Jobs You Can Get With a 2-Year Degree

These jobs pay more than the typical job in the U.S. — and no bachelor’s degree is required.

The 15 Worst States for Retirees in 2020
The 15 Worst States for Retirees in 2020

Based on dozens of metrics tied to affordability, quality of life and health care, these are not ideal places to spend retirement.

9 Deep Discounts Available on Amazon This Friday
9 Deep Discounts Available on Amazon This Friday

These items are all steeply discounted — but the deals won’t last long.

5 Ways to Get Amazon Prime for Free
5 Ways to Get Amazon Prime for Free

Hesitant to drop $119 a year on an Amazon Prime membership? Here’s how to get it for free.

11 Senior Discounts for Anyone Age 55 or Older
11 Senior Discounts for Anyone Age 55 or Older

There is no need to wait until you’re 65 to take advantage of so-called “senior” discounts.

26 States That Do Not Tax Social Security Income
26 States That Do Not Tax Social Security Income

These states won’t tax any of your Social Security income — and in some cases, other types of retirement income.

10 Reasons Why You Should Actually Retire at 62
10 Reasons Why You Should Actually Retire at 62

If you can, here are several good reasons to retire earlier than we’re told to.

3 Ways to Get Microsoft Office for Free
3 Ways to Get Microsoft Office for Free

With a little ingenuity, you can cut Office costs to zero.

5 Keys to Making Your Car Last for 200,000 Miles
5 Keys to Making Your Car Last for 200,000 Miles

Pushing your car to 200,000 miles — and beyond — can save you piles of cash. Here’s how to get there.

7 Surprising Features That Boost Your Home Value
7 Surprising Features That Boost Your Home Value

You can add value to your home without hiring a contractor to do expensive renovations.

View More Articles

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Add a Comment

Our Policy: We welcome relevant and respectful comments in order to foster healthy and informative discussions. All other comments may be removed. Comments with links are automatically held for moderation.