Does Lowering a Credit Line Affect Your Credit Score?

Lowering your credit line can have a somewhat negative effect on your credit score by reducing your debt utilization ratio. When you lower your credit line, it reduces the amount of your available credit. This makes your proportion of debt in use higher relative to your total available credit.

Credit Score Basics

Your credit score is reported by three credit reporting bureaus -- Equifax, Experian and TransUnion. Although each agency has its own scoring model, all are based on the FICO scoring system that was developed by the Fair Isaac Corp. In its score, FICO breaks down all scoring factors into five broad categories: credit history, length of credit history, amounts owed, types of credit and new credit. The history factors make up roughly half of your score, amounts owed makes up 30 percent and the other two categories account for 10 percent each.

Higher Debt Utilization

Debt utilization is the major premise of the amounts used category of your FICO score. This is a relative comparison of the amount of credit you currently use to the amount of credit you have available for use. Lenders are concerned with your debt utilization because they want to know when you ask for new credit whether you are already swimming in debt. Generally, the lower your debt utilization the better your score, says Liz Pulliam Weston of MSN Money in her December 2010 article "Weird stuff that hurts your credit."

Lowering Credit Line

The actual point effect on your credit score depends on the original size of the credit line and what you lower it to. Lowering a credit line from $10,000 to $5,000 has more effect than lowering from $2,000 to $1,000 because you have lowered your available credit by $5,000 instead of $1,000. Even though your score may drop a few points by lowering the line, doing so still makes sense if you struggle with spending discipline and want to limit your access to credit.

Other Options

One alternative you might consider as opposed to lowering your credit line is to ask your creditor to put a temporarily hold on the account if you are getting your finances in order. If it is a credit card account, you could also put the card in a safe deposit box or simply cut it up. If you decide you want access later, the card provider would issue a replacement. These are alternatives if you really want to avoid impacting your credit score in any way. Avoid closing the account, if possible, to retain the account's history.