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

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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 minimize 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 realized 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 $50,000 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 $8,100 credit limit and my old Blue® from American Express cardhas a $8,300 limit. My Amex EveryDay® Credit Card from American Express, formerly an Amex EveryDay® Preferred Credit Card from American Express, had a high $20,500 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 $10,000 to $10,500. 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 …read more

Source:: Business Insider


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