Why American Express lowered my card's limit even though I have a credit score of 836 — and what I could have done to avoid it

Crystal Cox/Business InsiderMake sure you cycle all your credit cards through your wallet occasionally to keep your accounts active — this can help you avoid any surprise reductions to your credit limit.
  • I recently received a letter from American Express telling me that it reduced the credit limit on one of my cards because there hadn’t been much activity on my account over the last year.
  • A lowered credit limit can have a negative impact on your credit utilization ratio, which accounts for 30% of your credit score.
  • Credit card companies may lower credit limits if you haven’t used your card for a while, or if your credit score suddenly drops. And in the face of COVID-19, some banks have
 begun cutting credit limits to minimise their risk.
  • To avoid having any of your credit card limits lowered, make occasional purchases with all of your cards. Small purchases are fine; you just want to have some account activity.
  • Keeping your credit score in good shape and maintaining or growing your income can also help you avoid reduced credit limits.
  • See Business Insider’s list of the best rewards credit cards.

When I opened a letter from American Express dated February 15, 2020, I definitely didn’t expect to see that the credit limit on my Amex EveryDay® Credit Card from American Express was cut, but that’s exactly what happened.

I have an excellent credit score (836 according to TransUnion’s model, and 818 according to Equifax), but I quickly realised why this happened: I hadn’t used that card in quite a while.

Why credit card companies lower credit limits

When you apply for a credit card, the credit card issuer looks at your credit and the ability to pay back any outstanding balance. Sometimes the decision is made by a computer in the blink of an eye. If you’re approved, based on your income and credit history, the credit card company sets your credit limit.

I have four credit cards from American Express but only use one of them regularly, my American Express® Gold Card, which has no preset spending limit. Using the “check your spending power” tool, I quickly found I can borrow at least $US50,000 with that card.

My less-active American Express cards are older cards that I downgraded to in order to stop paying annual fees for cards I no longer wanted. My Blue Sky card has an $US8,100 credit limit and my old Blue® from American Express cardhas a $US8,300 limit. My Amex EveryDay® Credit Card from American Express, formerly an Amex EveryDay® Preferred Credit Card from American Express, had a high $US20,500 limit at the start of the year.

After looking at my credit limits and activity, someone – or some algorithm at Amex – decided to cut my EveryDay card’s limit by $US10,000 to $US10,500. The reason, according to the letter from American Express, was: “There has been minimal activity on your account in the last twelve months.”

Inactivity is one of the most common reasons for credit card companies to lower credit limits. They may also cut limits to lower their risk with specific customers. Just because the credit card company sets a limit at a specific point in time doesn’t mean your finances will always be the same. If your credit score suddenly drops, for example, the credit card company might decide to lower your credit limit.

Additionally, in the face of the coronavirus crisis, some credit card issuers have begun reeling in credit limits to minimise their risk during this uncertain time.

How a lower credit limit can hurt your credit score

Your cards’ credit limits factor heavily into the formula that determines your credit score. Your credit limits specifically factor into the second biggest factor of your credit score: your credit balances, or your credit utilization.

If you have high balances in relation to your total credit limit across all your card accounts, your credit score will suffer. A very low balance, on the other hand, will help your score. The credit score formula looks at the percentage of your available credit in use. Higher limits mean each purchase uses a smaller percentage of your credit limit.

When my credit limit was cut on my Amex card, my total available credit limits went down by $US10,000. This wasn’t a huge deal for my credit, as I have big limits across many cards, but for some people, it could be a bigger problem.

To better understand the impact, let’s look at an example:

Assume you have a $US5,000 balance split between three cards and a total available credit limit of $US30,000. In this scenario, you are using 16.7% of your credit. That’s well within the expert suggested limits of using no more than 20% to 30% of your available credit.

But if your credit limits are dropped to $US20,000, all of a sudden you’re using 25% of your available credit. That change is almost certain to negatively impact your credit score.

As a general rule, higher credit limits across your card accounts are better as long as you can manage them responsibly and don’t spend more than you can afford to pay back in full every month.

What you can do to avoid a lower credit card limit

There are three strategies you can take to avoid the same fate as me:

Maintain your credit score

The first strategy to keep up your credit limits is to keep your credit score high. If you always pay on time and keep your balances low, your score should increase over time. Avoid late payments and high credit balances whenever possible.


Maintain or grow your income

Your debt-to-income ratio tells lenders how much of your income is needed to keep up with your credit-related bills. A growing income helps here, as does keeping your credit balances low.


Keep your credit cards active

For the specific reason my credit limit was cut, it’s a good idea to keep cards active. Using a card at least once every few months for a small purchase should be enough to avoid having limits cut – or, even worse, cards closed – due to account inactivity.


Use a system to keep your cards under control

My wife and I have about 20 credit cards between the two of us. That’s a lot of accounts to keep active. With so much to juggle, I’m not surprised my limit was cut by American Express.

To keep cards active, I use a combination of strategies. Some cards have a small recurring charge each month, like Netflix or Spotify, that I pay with auto-pay. Other cards come out every three or six months and get used once or twice before going back in the drawer.

Whatever system works best for you to keep cards active, be sure to stay on it to maintain your credit card limits and credit score. In the long run, it is a great decision for your financial health.

Related Content Module: More Credit Card Coverage

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