When a lender like Next or Barclaycard slashes your credit limit, it can feel like an insult, especially when you’ve been managing your account responsibly.
Here are some recent stories I have heard, and a look back at some older examples.
These aren’t the only two lenders that do this!
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Next cutting limits
This has happened to a number of Next customers recently.
In one case, a customer had her credit limit cut in half for the second time! Late last year, her limit was unexpectedly dropped to £1,500. Since then she has been working to get her balance lower and just got it down to £1,500. But this week it’s been slashed again to £750.
Next say the changes in credit limits are due to changes in affordability and apologised for them being “disappointing“. But that customer hadn’t seen her situation worsen in the last 6 months.
And other Next customers have given examples of apparently random changes. One had her limit reduced to £3,750 in September 2019, for no reason they could see. Then they were furloughed during Covid and had to change jobs to a lower salary… only to find their limit was increased in October 2020 when they were worse off!
Barclaycard can make huge cuts
One Barclaycard user had a message saying:
We know this might not be ideal, but we’ve had to lower how much you can borrow on your Barclaycard. So on dd/mm/yy your credit limit will change from £4550 to £2500.
There are many other examples of them making large, and apparently random, cuts or increases:
- in Credit cards: ‘My spending limit was slashed by 90% two Guardian journalists tell how one had a massive cut (after being a victim of fraud) and another had an unexpected increase;
- on Reddit, a user who had had a 10k limit for about 20 years reported “Last year they slashed it to £300 without any reason why and this month it was reduced again to £100, was pretty useless at £300 now at £100 it’s totally useless.”
These limit reductions harm your credit score
If you were planning to make a large purchase this kind of sudden change can throw your plans off course. But even if you weren’t planning a big spend, having your limit cut can still cause problems you might not expect. This move isn’t just inconvenient – it can do real damage to your credit score.
Maxed out credit shows financial strain
If your limit has been cut to below your current balance, it will be reported to the credit reference agencies as maxed out
Lenders don’t like seeing credit cards or catalogues near or at their limit, even if you’re making regular payments on time. It gives the impression of financial strain, and that can weigh heavily on your credit score.
Credit utilisation
But even if the new limit is less than your balance, by cutting the limit your “credit utilisation”gets worse.
Credit utilisation is the percentage of your available credit that you’re actually using.
If you’re carrying a balance of £500, that might not sound too bad. But if your limit drops from £1,500 to £750, your credit utilisation jumps from 33% to nearly 67%. That’s something credit scoring systems penalise you for.
Experian says, if you use less than 30% of your limit, you can gain up to 90 points, but if your balance is over 90% of your limit, you lose up to 50 points. See How much will my credit score change if? for more examples of credit scores.
Credit utilisation is calculated not just for an individual card, but also looking at all your credit cards and catalogue accounts. So that too gets worse when a limit on one card is reduced.
Harder to refinance other debts
A particularly unwelcome side effect of this is that it may be harder to get 0% balance transfers.
This can slow down your debt clearing, or even throw it into reverse if a 0% term expires and it’s hard to afford the higher minimums when interest starts being added.
What can you do about this?
Credit limit cuts aren’t just annoying. They can have a ripple effect on your borrowing power, your score, and your financial plans.
This all adds up to a frustrating and unfair situation for many borrowers. You can do everything right – pay on time, stay within your limit- and still find that a lender’s decision puts your credit score under pressure. Worse, there’s usually no warning, and may be little you can do about it.
Can you reduce your balance quickly?
The best response is to try to reduce your balance as quickly as you can. This will get your utilisation back down.
That’s easier said than done of course. But the sooner you can bring your balance below 30% of the new limit, the sooner your score will start to recover.
If you’ve been affected by a credit limit cut like this, there’s something else you might want to consider – especially if the original limit felt too high to begin with.
Think about making an affordability complaint
In the recent case mentioned above, Next say they’ve decided her previous credit limit was too high to be affordable.
Next has a track record of giving high limits early on, or increasing them, without checking if the customer can really manage it. Their interest rates are steep too – so a large balance can cost a lot to pay off.
If your credit or catalogue limit was ever raised to a level that wasn’t manageable for you, it may not have been responsible lending. And that gives you grounds to make a complaint.
You can tell the lender that the limit was too high to be manageable and ask for the interest to be refunded. My article How to get refunds from catalogues and credit cards explains more about these refunds and has a template to use.
This applies not just to Next and Barclaycard, but to other catalogue or credit lenders too. If your lender gave you more credit than you could reasonably afford, it’s worth challenging.
Other articles that may help:
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