But since experts recommend using 30% or less of your available credit, and now I have much less credit available, I have a strict spending limit, which I monitor constantly. It wasn't worth trying, since I still had my other credit card. With a "poor" credit score, I had less chance of approval. Each told me I'd have to reapply for a new card. I spoke with three customer service representatives to reopen my card. It happened again during the pandemic, according to data from the Federal Reserve's Senior Loan Officer Surveys. In 2008, the Federal Reserve found that 20% of banks cut prime borrowers' credit limits. "We've seen this during past recessions as lenders get nervous customers won't pay them back."
"Inactivity is the most common reason for credit limit decreases," says Ted Rossman, a credit card senior analyst at personal finance website Bankrate. My available credit was halved when my card closed. If what's available drops, your ratio rises, thereby hurting your score. It's the amount of credit used compared to what is available. That's because of a metric called debt-to-credit ratio. "That can actually hurt your credit report." "If you have underutilized credit, meaning not putting anything on it for a perpetual basis, they can sometimes close those down," explains Tim Maurer, a member of CNBC's Financial Advisor Council.
My credit score dropped from "good" to "poor" overnight. But my bank marked the account "inactive" and terminated my credit line without notice. I didn't want to add to my debt while paying it down, so I didn't use my card until I reached a $0 balance.
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