Obscure Factor Affecting Credit Score

[greenbait44]

Hi - I'm Mike [removed] from Texas.  I have a credit card account with Target. On this month's statement Target lowered my credit limit  from $2000.00 to $1000.00. I haven't charged my Target card since FEB 2020, while maintaining a zero balance. The  next day I received alerts from the big 3 scoring services that my FICO score had decreased by up to 16 points! Question: do the Big 3 consistently drop scores because of a lowered credit limit?

[tagteam · Accepted solution]

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@greenbait44 wrote:

Question: do the Big 3 consistently drop scores because of a lowered credit limit?

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The following is a link to an Experian web site on which they state:

If a lender decides to reduce the credit limit on one of your accounts, your credit utilization ratio may spike, which can negatively impact your credit scores.

https://www.experian.com/blogs/ask-experian/does-a-credit-limit-decrease-hurt-your-credit-score/

[Opus 17]

Reducing your credit limit does two things. It reduces your overall borrowing ability, and it increases your current debt as a percentage of your total borrowing ability.  Both of these can cause your credit score to decrease, although the effect should largely be temporary.  Unfortunately, canceling your card in retaliation will further reduce your borrowing ability as well as potentially increase your utilization, and it may also decrease the length of your credit history, especially if this is one of your older accounts.

You may want to use the card occasionally if you still shop at Target, provided you keep your maximum monthly balance to less than 10% of your credit limit, and you pay it in full every month. Otherwise, just leave it in your wallet or desk drawer, until you really need it, and forget about short term fluctuations in your credit score.