Credit card: Is the bank lowering your credit limit without you even knowing about it? Your finances are at risk
Suspense Crime, Digital Desk : It’s quite common to have received notifications over the last few days, without warning, that your credit card limit has been lowered. Confusing, but the experts assure us that there’s a certain financial metric associated with this trend. Banks only decide to lower credit limits after reviewing multiple financial indicators; not even one single indicator is sufficient to affect this.
Repayment process
The customers repayment history is a crucial metric to the banks. Customers who fail to pay their dues on time or only pay the minimum due are perceived as a threat, and hence the credit limit is lowered.
Credit Score
A person’s CIBIL score, which serves as a measure for an individuals creditworthiness, plays a major part as well. A fall in a person's score indicates the inability to manage finances efficiently, which could lead to lesser borrowing capacity for that person.
Credit utilization
An individual’s credit utilization ratio is a vital aspect to the banks. Higher a value of it, the more probable it is that the customer may face financial strain. On the flip side, if you haven't used the credit card for a long period, then it’s possible banks would reduce the limit. Inactive cards aren't profitable for banks.
Internal factors of banks can also be one of the major reasons. Banks could possibly lower their customer's credit limits in times of economic stress or to balance their lending risk portfolio. These are often not fault of the customers. Lowering the limit could be the one major factor to hurt the credit score in case expenses are the same as earlier. Hence with a lowered credit limit and a constant usage, the credit utilization ratio is bound to increase.
Instead of panicking, one must contact their bank to understand the situation. Paying dues on time and using below 30% of the available credit limit would help in getting a limit hike again. Updating income proofs could possibly play a role too.
