Clark Says This Move Can Help Preserve Your Credit Card Limit

Has your credit card issuer tried to lower your credit card limit recently?

As economic conditions fluctuate, credit card companies are looking for ways to lower their risk of bad debt. And an easy area to trim that risk is to lower limits or even close accounts altogether for dormant cardholders.

That’s why it’s important to use all of your credit cards periodically, even the ones that aren’t your everyday spenders and sit collecting dust in the back of your desk drawer.

Money expert Clark Howard has long kept the idea of using each credit card for a purchase at least twice a year as a part of his rules for using credit cards.

But in recent months he’s hearing from cardholders who say they’re getting their credit limits slashed in spite of that periodic use.

“Once every six months is not sufficient right now,” Clark says.

As we navigate through the financial climate entering 2023, Clark has a step you can take to better preserve your credit card limit.

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Clark’s Advice for Protecting Your Credit Card Limit in 2023

So if two credit card purchases per year is not sufficient to protect your credit limit in the current climate, what is?

During a recent conversation with Clark, he offered the following solution as the simplest measure most consumers can take.

“What I would do is make a recurring purchase and set up automatic payments with your credit card,” Clark says. “So, for example, if you’re paying a streaming service $14.99 per month, just have it go to that one credit card every month. That way you’re showing continual activity.”

This is not a guarantee that your credit card company won’t take action, but making a monthly purchase and monthly payment (even if it is small) will show them that you’re an active customer.

The beauty of this method for showing credit card usage is that it does not require that you remember to make the purchases each month.

Spending sparingly with a credit card a couple times per year usually requires a bit more attention to detail, so this is actually a welcomed change in that regard.

Remember to pay your credit card bill in full each month with this strategy, though!

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Why Protecting Your Credit Card Limit Is Important

At this point, you may be wondering why protecting the credit limit on a rarely used credit card is something you should make a priority.

Beyond pure spending power, there are some credit score-related reasons that you’ll benefit from regular purchases that preserve a higher credit limit.

First, you’ll notice in the above illustration that approximately 30% of your credit score revolves around the amount of money you owe. Part of the calculations involved with this portion of your credit evaluation revolves around your credit utilization.

As it pertains to credit cards, credit utilization is a measure of your outstanding money owed versus the amount of money you could possibly borrow. The lower your utilization percentage, the better.

If you have a lower ceiling for credit card limits, you’ll be more likely to utilize a higher percentage of your available funds with your everyday spending. For example, a $100 purchase with a $1,000 credit limit (10% utilization) is much different than a $100 purchase with a $10,000 limit (1% utilization).

Next, you’ll notice that payment history (35%) is also a key component of your credit score. Making regular monthly purchases and payments will help build your payment history.

And, remember, not only are you at risk of card issuers lowering your credit limit due to infrequent usage, but you’re also at risk that they might decide to close your account altogether. Falling victim to an unwanted closure could impact your credit history length, which is 15% of your credit score.

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Final Thoughts

Hopefully, credit card companies will be less aggressive in slashing credit limits in the coming months.

But as things stand, you may benefit from a quick “status check” for each of your cards to ensure you have some sort of monthly charge assigned.

As more of our recurring purchases happen online, the options to choose one and assign it to a specific card are growing.

For maximum value in this exercise, you may want to try to pair the recurring charges you assign to each of your credit card based on the rewards the card may offer. For example, if you have a card that gives bonus rewards for a streaming subscription, it’d make sense for that one to be the card that is assigned the recurring payment for your streaming bill each month.

Do you have a solid strategy in place for protecting your credit card limits? We’d love to hear about it in the Clark.com community.