How the Coronavirus Could Ding Your Credit Score – part 2
As lenders slash credit card limits, any credit card user who isn’t careful might see his or her credit score suffer. With a lower limit, consumers are more likely to use a greater percentage of their available credit each month (or debt-to-income limit ratio), which has negative effects on their credit score and ability to borrow money.
In general, it is best to keep your debt-to-limit ratio, also known as a credit utilization rate, below 30%. That would mean that if your credit limit is $10,000, you should not let your credit card balance exceed $3,000.
But if your credit card company slashes your credit limit from $10,000 to $5,000, and you continue to let your balance reach $3,000, your credit utilization rate will jump from 30% to 60%. That could spell trouble for your credit score: Your credit utilization impacts both your FICO and VantageScore credit scores.
If you discover that your credit limit has gone down, call your lender and ask to have the limit bumped back up. Simply ask for a higher limit often works. Just be careful not to then increase your spending, as increasing both your credit limit and your credit card balance will not necessarily improve your utilization rate. See 7 Ways to Boost Your Credit Score Fast.
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