Your credit line, or limit, is the total amount you are permitted to charge to your credit card. You might be considering lowering your credit line, perhaps because you are not comfortable with the amount of credit that is available to you. However, it's usually best to keep your credit line intact and focus on paying down your outstanding balance.
Lower Credit Utilization Ratio
One reason for not lowering your credit line is that doing so raises your credit utilization ratio, which can lower your credit score. Your credit utilization ratio measures the relationship between your used and available credit. For example, if your outstanding balance is $2,500 and your total available credit is $10,000, your utilization ratio is 25 percent. If you lowered your credit line to $7,500, your ratio would jump to 33 percent. An increased ratio can result in a lower credit score.
Going Over Your Limit
Lowering your credit line could put you in greater danger of exceeding your limit at some point, especially if your outstanding balance is close to your limit. For instance, if your card issuer decides to raise its interest rates, the additional amount that is assessed to your outstanding balance could be enough to put you over the limit. The issuer can then make your situation even worse by tacking on any applicable over-the-limit fees.
Lowering your credit limit may not be a good idea if you don't have other funds set aside to cover emergencies. While charging an unexpected major expense to a credit card is not an ideal financial maneuver, it can be better than not being able to pay for it at all. Having no means to pay for a car repair, for instance, can leave you without a way of getting to work.
If you've focused on reducing your credit card debt but have difficulty managing your spending, lowering your credit line is one way of preventing you from incurring additional debt. However, you should probably consider this option only as a last resort because of the potential negative implications. Alternatives can include locking the card away in a safe deposit box to keep you from using it or giving it to someone you trust implicitly to hold for safekeeping.
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