Balance chasing and how to limit further adverse action

If a credit card issuer seeks to reduce its risk with a cardholder, the issuer might opt to “balance chase” the customer by lowering the cardholder’s credit limit as the balance is paid down. 


Impacts of balance chasing

If the cardholder was relying on the lost credit line for an upcoming purchase, they may find themselves scrambling to find other payment sources. 


The cardholder’s credit could also be affected due to the higher utilization rate. Let’s consider the following:

  • The cardholder’s $10,000-limit card has a balance of $2,500 and a utilization rate of 25%
  • The customer makes a payment of $600, resulting in a balance of $2,000 and a utilization rate of 19%
  • The lender decreases the cardholder’s credit limit to $2,500, which results in a utilization rate of 80%


Because of the high utilization rate, the customer is likely to experience a credit score drop. This could cause a snowball effect, resulting in an even bigger financial impact. If the cardholder’s other creditors notice the high utilization and/or drop in score, they could seek to reduce their risk with the cardholder by lowering the customer’s credit limits.


What to do if you’re balance chased

If you find yourself being balance chased, you should first contact your card issuer to determine why you’re being balance chased and ask if there’s something that you can do to stop further balance chasing.


You can also ask if they will restore all or part of your credit limit.


If your card issuer doesn’t restore your credit limit and your utilization rate is too high, you can work towards lowering your utilization rate.


A balance transfer to another card is an option if doing so will result in a lower utilization rate.


You can also work on quickly paying the balance down or off. Keep in mind that if you only pay the balance down, there’s a chance that you will still be balance chased, which would effectively make your extra payments useless. Depending on the balance and your budget, you may want to pay the balance off entirely.


Preventing balance chasing

As you can see, balance chasing can have devastating impacts on consumers. Unfortunately, the practice is legal.


Although you may not be able to stop a lender from balance chasing, you can limit the effects of balance chasing by having a backup plan.