As a growing number of cash-strapped consumers fall behind on their monthly credit card payments, credit card issuers are abruptly lowering credit limits on many customers’ cards, in some cases by more than 50 percent.

The consumers currently most at risk of getting their credit limits cut, reports The New York Times, are those who live in areas that have been most affected by the housing and foreclosure crisis, who have run up big debts, or who work for themselves in troubled industries. Even responsible consumers with on-time payment histories may find themselves on the receiving end of a suddenly curtailed spending limit.

“Credit lending standards are tightening across the board, it doesn’t matter how great your credit score is,” says Carol Kaplan, a spokeswoman for the American Bankers Association (“Consumer Credit Limit Crackdown,” CNN Money, Sept. 26, 2008). “This is happening everywhere, to everyone.”

3 Tips to Avoid Getting Burned by Credit Limit Cuts

When your credit card company springs a limit reduction on you, especially if you don’t find out about the change until after the fact, it’s easy to inadvertently go over your credit limit, incurring expensive over-the-limit fees and an over-limit blotch in your credit card history — which, in turn, could lead to yet another limit reduction for irresponsible spending.

To avoid getting caught by surprise and incurring any fees, use these three tips to stay on top of your credit card accounts and any changes your card issuers make.

1. Read the fine print.

   Look over your credit card statements closely each month to see if your credit limit’s been lowered. If you’re thinking of making a large purchase before you’ve received your most recent statement, call in and check your limit by phone.

   Most credit card companies reserve the right to cancel or adjust your credit limit at any time, regardless of your payment or credit history. They also have up to 30 days to notify you of a credit limit change — meaning you may not receive a notice about a reduction in your credit limit until after it’s already gone into effect, so it’s up to you to monitor for any changes as they happen.

 

2. Sign up for balance alerts.

   Some credit card companies will send an electronic alert to your e-mail or cell phone when your balance is approaching your credit limit. Turning on these notifications may help you avoid getting hit with a surprise over-the-limit fee if your credit limit gets cut unexpectedly.

 

3. Don’t react hastily.

   If your credit limit does get cut back, don’t automatically cancel your credit card; doing so could negatively affect your credit score by raising your debt-to-limit ratio — reducing your total available credit (from all your credit cards) even as your outstanding credit card balances stay the same.

   Cancelling a card could also hurt your credit if that card is one you’ve had open the longest: The length of your credit history will account for 15 percent of your FICO score. Generally, it’s a good idea to keep these established accounts open.

   Instead of closing your account, call your credit card company, request to speak to a supervisor, and ask the supervisor to re-institute your original credit limit.

   If that doesn’t work and you’re willing to let that card go and absorb any hits your credit may take, consider whether you want to find a replacement before you actually cancel the card. You may want to leave the account open while you shop around for a new card that offers you a lower interest rate and a higher line of credit. Just keep in mind that every credit card application you fill out will show up on your credit report as a credit inquiry, and multiple inquiries in a short period of time could negatively affect your credit score as well.

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