Many credit card companies are cutting credit limits for many borrowers, according to a recent BusinessWeek.com article.

For many Americans, access to credit could decrease even more at a time when credit is already notoriously tight.

The reason? They're reacting to increased unemployment rates and card defaults. Too many people are missing their payments.

Even if you've made all of your payments on time, you may still see your spending limit cut.

Why Credit Reductions Traditionally Happen

Traditionally, credit card issuers have reduced customers’ borrowing limits for one of the following reasons:

• Bouncing checks: When done consistently, this shows carelessness and suggests a borrower may not have enough money to make regular credit card payments.
• Making late payments: Though such payments may earn card issuers extra money in the form of late fees, late payments are dangerous if they become too late… that is, if they never arrive.
• Collecting unemployment: Unfortunately, job loss generally signals income loss. Though layoffs in this economy are often beyond an employee’s control, they may still push card issuers to limit borrowing ability.
• Taking cash advances: Besides being a terrible way to borrow money, cash advances (often in the form of payday loans) can signal to your card issuer that you’re in over your head financially.
• Living in the "wrong" neighborhood: Unfair as it may seem, your address may trigger a limit cut. If property values near you are falling, your credit card company may decide to slash your spending power.

Why More Credit Reductions Are Happening Now

Thanks to the unstable credit market, some people are seeing their limits cut for other reasons as well, including:

• Defaulting on another card: Universal default is the phenomenon that allows your action on one account to affect all your other accounts. In this case, a late payment on one card may cause your limit to be cut on another.
• Not using your card: Inactive or hardly active accounts seem to be getting hit by limit decreases, even when borrowers are in good standing.
• Running a low balance: Though this has traditionally been a positive move for credit building, sources report that these accounts have seen some cuts as well.

Why It Matters

Part of your credit health (as quantified in your FICO credit score) is determined by your debt-to-credit ratio.

In other words, a comparison of how much money you’re currently borrowing (debt) to how much you could borrow (credit).

Staying well under your limits is one way to strengthen your credit.

What to Do if Your Credit Limit Has Been Cut

First, be sure to read all mailings from your card issuer carefully.

If you receive a notice that your limit has been cut, don’t accept it without a fight.

Call and question your card issuer, particularly if you believe your account is in good standing and doesn’t merit such an action.

--Was your credit limit cut because you were slipping behind on the bills? Learn about the filing bankruptcy option.