Does Lowering Your Credit Card Limit Hurt Your Credit?

Personal Finance

It seems like Divinci himself couldn’t unlock the formula that the creditors use to calculate our scores. There are so many myths and debates as to what can or will affect your score that it seems difficult to follow the correct path to an 800 beacon. There are many popular questions in reference to credit cards and credit but the one that stands out above them all is “Does lowering your credit card limit hurt your credit?” The answer is simple, YES and NO. Now that you are spinning in circles, I will explain. A large portion of your score is calculated based off of your debt to available credit ratio.

If you carry a zero balance on your credit cards and have little debt then lowering your credit line should not affect your score. However if you have substantial debt and carry balances on your credit (Which I don’t recommend) then you should not lower your credit lines. The reason being is that when you do so, you take away from your available credit which increases your debt to available credit ratio.

How to calculate your debt to credit ratio: Add up all of your debt and divide it by the total credit available. This figure should be less than 50 percent but preferably 30 percent or lower. This helps determine if your use credit responsibly and it also I a good measure to see if you can meet your financial obligations without extending yourself. I wanted to answer this question in the simplest way possible and hope that I have succeeded. Just keep in mind; you don’t need a $15k credit limit to have good credit. Stop the line at $5k and keep your balance to a minimal or zero and reap the credit benefits.

To throw icing on the cake, get a rewards card and only pay for fuel. Pay the card off each month and earn rewards and cash back. Just be careful, credit cards can be equivalent to playing with a loaded gun. Just don’t kill yourself financially. If you have something to add, we would love to hear your thoughts. Please use the comment field below.