Imagine eagerly standing in line to make a purchase, then having the embarrasing encounter of getting your credit card declined. As the cashier hands back your card, you wonder why your card could have been declined - you paid your balance on time, the last you knew the card was still active. So you step outside to call your card's customer service and find out your credit limit has been slashed to just more than your credit card balance.
Having your credit limit cut is more than just an inconvenience. If your limit is cut below your balance you face hefty over-the-limit fees that credit card issuers charge whenever you charge more than your credit limit. Your credit score could also be hurt because now it looks like you've maxed out your credit card. Credit utilization - your credit balance compared to your credit limit - is 30% of your credit limit and a high utilization could cripple your score.
So what do you do now?
You could pay the balance down. To protect your credit score, it's a good idea to keep your credit card balances below 30% of your credit limit. If you have the money, you could make a lump sum payment that would bring your credit card balance down to that level. Not only will your credit score be safer, you also reduce the risk of over-the-limit fees.
Transferring the balance to another credit card is another option. Ideally, the new credit card should have a higher credit limit than your current credit card. Beware of balance transfer fees, though, that can make it expensive to move your balance to a new card.
Call your credit card issuer to talk about getting your higher credit limit back. Depending on the reason your credit limit was cut, you might be able to talk your card issuer into increasing your credit limit to give you some room. Don't get your hopes up, though, in a bad economy getting your credit back isn't easy.
You could always do nothing. Nothing says you have to take action. If your balance is below the credit limit, you could very well continue paying the balance at your normal pace. Just make sure you have available credit before making a purchase with the card.
What Not To Do
No matter what, don't close your credit card while it still has a balance. Though you might want to get revenge on your creditor for cutting your credit limit, closing your credit card hurts you not your card issuer. Because a closed card with a balance looks like you've maxed out your credit card (even when it's not really maxed out), you should at least leave the card open until you've completely paid it off.
