We’ve had a number of people asking how to decrease their credit limit. Obviously this isn’t what most people are trying to do. It took me awhile to understand why someone would want to do that. After all, most people want to increase their credit. If you have a low self control threshold, it may make sense to trim back your credit just so you can’t spend more than you can afford to pay back.
Another reason you might want to trim back your credit limit is because of the way it will affect your credit score. Lenders may view a tremendous amount of available credit as potential debt and may worry that you might max out your spending and get in over your head. For example, a mortgage lender may be hesitant to loan you money for a house if they see you have 10 credit cards with a total of $150,000 of credit available.
You may be better off in the long term by canceling a few of the credit cards with the worse terms in order to bring your credit limit down to a more manageable level. You can also call up your credit card company and ask them to lower the limit. They may try to talk you out of it, but most companies should be able to give you a lower limit if you ask.
Generally it is better not to make these types of moves right before trying to get a mortgage or qualify for some other major loan. Credit scores can be lowered when you cancel several credit cards and a sudden change in your credit limit may also look suspicious or count against you in the credit score calculations.
Decreasing your credit limit can be a very good strategy, but you must be careful not to generate any negative side effects–especially if you are expecting to buy a house or car on credit in the very near future.
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