Credit Cards

Dear Liz: You recently answered a question about a woman who asked her credit card issuer to lower her credit limits. While it’s true that lowering your credit limit on a card can have a negative effect on your credit scores, it may be needed to leave credit room for new cards, as your total credit across cards vs. your annual income is considered. And of course your credit score won’t suffer when balances are paid down before the statement date.

Answer: Credit scoring formulas calculate your credit utilization based on the amount of credit you’re using on the day that the card issuer reports your account to the credit bureaus each month. That’s usually, but not always, the balance as of the statement closing date. Making a payment just before that date often lowers your credit utilization and can help your scores.

So yes, making a payment before the statement closing date can offset the negative impact of lowered limits. However, it would be rather foolish for an individual to request lower limits thinking that a credit card issuer might prefer them to have less credit. Typically, healthy credit limits are a sign you’re managing your credit well. Even if a credit card issuer might look askance at your available credit, you won’t know exactly where to draw that line. Credit card issuers have different policies on how they set credit limits, and they typically don’t broadcast how those decisions are made.