Barclaycard has faced criticism this week for slashing the credit card limit of thousands of customers despite there being no meaningful changes to their finances or credit scores, with some facing cuts of more than 95% overnight.
Many have complained that Barclaycard has reduced their limit even though they have never missed a payment, and the provider has received widespread disapproval for making reductions just when some may need their credit more than ever, as the UK government begins to roll back its coronavirus income support schemes.
The news comes less than a year after the provider was forced to apologise for setting credit limits too high for some of its customers.
Why is Barclaycard reducing credit card limits?
Your credit card limit is tailored to suit you and your unique circumstances.
If you have a larger income and a good credit history, you can potentially borrow more, whereas someone on a lower income with a poor credit history will generally have a much lower credit limit.
Usually you can adjust your credit limit if your circumstances change or you begin to fall behind on your repayments.
However, regardless of your financial standing or your payment track record, your provider reserves the right to change your credit limit at any time, unless your contract's terms and conditions explicitly state a different arrangement.
Barclaycard has defended its decision to cut credit limits by saying that it takes into account changes in the economy when considering credit limits, as the wider economic landscape can impact a customer's "ability to manage their borrowing effectively".
In regard to this month's cuts, Barclaycard has said that it is taking into account the ongoing economic impact of the coronavirus pandemic, and concerns that many will struggle with finances as lockdown lifts, to justify a reduction in the amount of credit that they are able to access.
What can I do if my credit limit is suddenly cut?
Although having your credit limit suddenly reduced can understandably come as a big shock, there are a number of options for you to challenge your revised limit.
Contact your card provider to review your credit limit
If you feel that you can afford a higher credit limit than you have been given, you are entitled to contact your card provider in order to review its latest assessment and potentially change your limit.
You will have to provide evidence that you are financially stable and in a position to make your monthly repayments on time, so having a history of managing your debt sensibly with your credit card will put you at an advantage when requesting a higher credit limit.
In order to request a change to your credit limit, you should appeal to the company directly using the contact details on your prior correspondence with them.
Change to a different credit card provider
Significant changes to your credit limit may be unsustainable for you, and if you want to avoid the hassle of negotiating a reassessment, you can opt to change to a different provider. There are plenty of alternatives to choose from.
If you are concerned about other lenders cutting their credit limits, Virgin Money and Santander have both announced they will not be making reductions to their customers' borrowing limits in order to support those struggling with the financial impact of the pandemic.
It is worth noting, however, that making an application for a new credit card usually has a minor negative impact on your credit score with the main credit reference agencies, so bear that in mind if you are likely to be applying for significant borrowing, such as a mortgage or car finance, in the near future.
If you're unsure whether you will be accepted for a new card, make sure you use an eligibility checker first to avoid harming your credit report further if you are rejected.
Before you decide to cancel your existing credit card, read our article "Will cancelling an unused credit card affect my credit score?". You will need to weigh up whether it is worth keeping the card as a back up, as cancelling it can impact your credit score.
For an up-to-date look at the best credit cards on the market, check out our article "Best credit cards in the UK - April 2021".
Check your credit report
While it is a good idea to keep an eye on your credit report anyway, it is especially necessary if your credit limit has been suddenly reduced.
Any inaccuracies or erroneous changes can be rectified with your creditor and amended with the credit reference agencies, and could potentially be the difference between a good and bad credit score with a lender. Stay alert for unusual activity as this could be the result of identity theft.
For a quick and easy way to check your credit report, visit our 5 minute how-to guide.
Will a reduced credit limit affect my credit score?
If your lender decides to reduce the credit limit on your account, this can affect your credit utilisation ratio, which measures how much credit you use relative to your limit. Having your limit significantly decreased may cause your utilisation ratio to spike, as you would be borrowing closer to your limit, and this can bring your credit score down.
So, if you were already using up a large proportion of your credit when the card provider reduced your limit, you may find yourself with much less wiggle room left in your monthly allowance.
For example, if you had a £10,000 limit on your credit card and you had already used £1,000 of that, this would mean you had used 10% of your available credit. If your provider then reduced your credit limit to £2,000, you would have used 50%, which could negatively impact your credit score with the main credit reference agencies.
However, your credit score with the three main credit reference agencies are made up of a number of different factors, so the overall impact will be tempered by your other borrowing and financial behaviour. If, for example, you have other credit cards with larger balances, this may balance out the impact of a single credit limit cut.
For more information on how exactly your credit score works, check out our video "What is a credit score and how do you check it?"
How can I improve my credit score if my limit has been reduced?
If your credit limit is reduced and your credit score takes a hit, you are not necessarily stuck with it. There are a couple of ways you can improve your credit score, which in turn puts you in a better position for having your credit limit increased.
You can apply for a new credit card
Although applying for a new credit card can have an initial negative impact on your overall credit score, increasing your cumulative credit limit across all your accounts can have a positive affect on your utilisation ratio - because you are using up a smaller proportion of the total amount you are entitled to - which will eventually improve your credit score.
It is important to note, however, that if you are turned down for another credit card then this can damage your credit score, so you should make sure that your credit report is favourable before you make an application.
If you are turned down for another credit card, we have some useful tips on what to do next.
You can increase your credit limit on another card
If you want to avoid applying for a new credit card, you can simply request to have the credit limit on one of your existing accounts increased.
This should help to offset the negative impact a credit reduction would have on your overall credit score, as long as you make sure to manage your debt and not fall behind on your repayments.
Keeping your credit utilisation ratio low across all your accounts - that is, making sure you do not repeatedly reach the limit on the amount you are permitted to borrow - will have a positive impact on your credit score.
How can I boost my credit score?
For more information on what to do if you are stuck in a bad credit rut, check out our article on how to improve your credit score quickly or consider the best credit cards if you have a bad credit rating.