Will the economy get worse? Before you do, consider raising your credit limit.

Relying on a credit limit in a shaky economy is like expecting a flimsy bridge to weather the storm and keep you alive.

It is not uncommon for credit card issuers to reduce their risk by lowering credit limits or closing accounts during economic downturns. Credit card issuers took these steps during the 2007-09 recession and the start of the Covid-19 pandemic, according to a 2022 report by the Consumer Financial Protection Bureau, possibly due to changes in credit profiles, internal account performance metrics or issuers. Risk management policies.

As an uncertain alternative, the credit limit is still a bridge that should be maintained to support an emergency fund, especially before the collapse. There’s no foolproof strategy to prevent an issuer from lowering credit limits or closing your account, but some actions can minimize the impact on your wallet and credit scores.

Keep credit cards open and active

In the year In March and June 2020, many accounts held by cardholders, even those with high credit scores, were closed due to inactivity, according to a CFPB special issue published that year. Inactive cards aren’t making the issuer cash, so they pose more risk to the issuer in tough times.

Keeping credit cards open and charging regularly scheduled purchases is helpful to give vendors a reason to tap your account, but that may not be enough.

For Timothy Barnes, an auto mechanic in Rocky Mount, North Carolina, it doesn’t matter if he still has a good number of active accounts at the end of 2020. A major issuer closed several accounts due to over $17,000 in credit.

“There was one day I bought something online and the credit card was declined,” Barnes says. “They told me it was an accident, but I never missed a single payment.”

In the past, some lenders did not offer credit limit reductions to cardholders. In May 2022, the CFPB’s advisory opinion on the Equal Credit Opportunity Act confirmed that lenders must provide a “reverse action notice” explaining the reasons for unfavorable decisions.

See also: ‘Forget about chasing rewards and look for the lowest possible interest rate’: Credit card rates at highest level not seen since 1996

Consider asking for a credit limit increase

If you’re paying on time and don’t use more than 30% of your available credit, consider applying for a higher credit limit on recurring credit cards. Income is another factor considered by issuers for increasing credit limits, said Derek Mazzarella, a certified financial planner at Glastonbury, Connecticut-based firm Gateway Financial Partners.

“If your income has gone up since the last time you applied for the credit card, or if you haven’t updated that, I make sure your income is properly updated,” Mazzarella says.

Some lenders allow you to update your income by logging into your account, and use that information to increase your credit limit, no questions asked. Depending on the issuer, credit scores may temporarily drop when you request a raise, so ask how credit will be affected before doing so.

One of the biggest factors in credit scores is utilization, or how much credit you have available to you compared to how much you use. Increasing your credit limit can increase your available credit and help build your credit score. The opposite is true when a credit card issuer defaults on a credit limit – results pay off. A reduction by one issuer also affects the limits of other credit cards.

Increasing your credit limit can reduce the impact of future downgrades, but it doesn’t prevent account closures, which can lead to lower scores.

“My credit changed a lot after they did that, but before that it was exceptional,” Barnes says.

Weigh the pros and cons of applying for funding in the near future to determine the best course of action.

check out: You work hard to pay off debt. Here’s the amazing secret that will keep you from going backwards when the economy slows down

Different credit limits

Barnes had multiple credit card accounts with one issuer because it was convenient. Thankfully, he had an emergency fund and a few other credit cards to weather the economic storm of 2020.

If you don’t already have one, consider building other bridges by opening a credit card at a different institution. If you tend to overspend, keep a low credit limit to control spending, says Mazzarella.

A new card application may cause a temporary drop in credit scores, but not as much as a credit limit reduction. Look for a general purpose credit card accepted by most merchants for variable expenses.

See also: 5 ways your credit cards can help you beat inflation

Manage credit limits strategically

Use your available credit wisely to keep it manageable. If possible, manage finances in the following ways.

  • Manage current credit cards responsibly before opening another.

  • Delay credit card applications by six months or more to minimize the impact on credit scores.

  • Use less than 30% of available credit.

  • Pay more than the minimum on time.

  • Have an emergency fund to avoid relying on credit cards.

  • Prepare a plan to pay off large purchases before they are added to the card account.

  • Asking credit card issuers to keep your credit limits or accounts open if you plan to take action against them.

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Melissa Lambarna writes for NerdWallet. Email: mlambarena@nerdwallet.com Twitter: @LissaLambarena.

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