What Does It Mean If Credit Card Is Restricted: Understanding the Reason and Next Steps

A restricted credit card can cause confusion and concern, especially if you aren't sure what happened. When your card is restricted, it typically means that your issuer, such as a bank or credit union, has temporarily or permanently limited your access to funds. This restriction can stem from different reasons, such as missed payments, suspicious activity, or exceeding your credit limit.

Understanding why your credit card is restricted and knowing the steps to take is essential for regaining control of your financial situation and ensuring your credit score isn't negatively impacted. In this blog, we'll explore common reasons behind credit card restrictions and what actions you can take to resolve the issue efficiently.

What is a Restricted Credit Card?

A suspended credit card has had its usage temporarily or permanently limited by the card issuer. The cardholder may be unable to make new purchases, withdraw cash, or access the account online. Restrictions can occur for several reasons, such as missed payments, exceeding the credit limit, suspicious transactions, or suspected fraud. A restricted card doesn't necessarily mean your bank account is closed, but your ability to use the credit line has been significantly reduced until the issue is resolved.

Reasons for Credit Card Restriction

Your credit card can be declined and restricted for several reasons, often related to the cardholder’s behavior or account activity. Some common reasons include:

• Missed or Late Payments: Failing to make payments on time can lead to a temporary restriction until the outstanding balance is paid.

• Exceeded Credit Limit: If you go over your card's credit limit, the issuer may restrict further transactions until the balance is reduced. Account for pending transactions on your credit card, even if it doesn't show on your bill yet.

• Suspicious or Fraudulent Activity: If the card issuer detects unusual or suspicious transactions, they may restrict the card as a security measure to prevent unauthorized use.

• Overdue Account Review: Some issuers periodically review accounts. If they notice concerning credit behavior like a high debt-to-income ratio), they may restrict access.

• Violation of Cardholder Agreement: Breaching the terms of the credit card agreement, such as using the card for prohibited purposes, can lead to a restriction.

• Security or Verification Issues: Sometimes, card issuers restrict access to verify account details or contact the cardholder regarding security concerns.

• Fraud Alerts or Freezes: If a cardholder reports suspected fraud or requests a freeze for protection, the issuer may restrict the card until further notice.

Impact on Credit Scores

A restricted credit card can indirectly impact your credit score in several ways, depending on the reason for the restriction and how quickly the issue is resolved. Here are the potential impacts:

• Late or Missed Payments: Late or missed payments can be reported to credit bureaus. Since payment history is important in your credit score, this can lead to a significant drop in your score.

• High Credit Utilization: Restrictions caused by exceeding your credit limit can result in a high credit utilization rate, lowering your score. Utilization of over 30% of your available credit can signal to lenders that you're overextended.

• Account Closure: A restricted card may lead to permanent closure. If this happens, it can reduce your available credit, increasing your credit utilization rate, and lowering your score.

• Credit Inquiries: If you apply for a new card to replace a restricted one, the hard inquiry from the application process could temporarily lower your score.

• Fraud or Suspicious Activity: While restrictions due to fraud may not directly harm your credit score, unresolved issues related to identity theft could lead to fraudulent transactions or missed payments that negatively impact your score.

Resolving credit card restrictions quickly and maintaining good payment habits will help mitigate negative effects on your credit score.

Can You Get a Credit Card with a Lower Credit Score?

Yes, you can still get a credit card with a lower credit score, though your options may be more limited than those with higher credit scores. Here are some credit card options available for individuals with lower scores:

• Secured Credit Cards: Secured credit cards are great for people with lower credit scores. These cards require a refundable security deposit that acts as collateral and usually serves as your credit limit. By using the card responsibly and making timely payments, you can gradually improve your credit score and eventually qualify for unsecured cards.

• Subprime Credit Cards: Some lenders offer credit cards designed for people with lower credit scores. These cards often have higher interest rates and lower credit limits and may charge additional fees. Subprime cards can help rebuild your credit through regular, on-time payments.

• Retail Store Credit Cards: Store credit cards are generally easier to qualify for, even with a lower credit score. These cards often have high interest rates and can usually only be used at specific retailers, but they can help improve your credit if used responsibly.

• Credit-Building Cards: Certain financial institutions offer credit-building products, like KOHO’s prepaid credit-building feature. These tools allow you to build credit by paying for everyday expenses and can be more accessible for individuals with lower scores.

• Joint or Authorized User Cards: If you have a trusted friend or family member with a good credit history, they may add you as an authorized user on their account. It allows you to benefit from their positive credit behavior, which can help you improve your credit score.

• Cards with Lower Credit Requirements: While the average credit score is a good benchmark for getting approved, some credit card issuers have cards designed for those with fair or poor credit, typically with easier approval requirements. These cards may offer lower credit limits and higher fees but can be a stepping stone to building better credit.

Resolving Credit Card Restrictions

Resolving a credit card restriction involves identifying the underlying issue and taking the appropriate steps to restore full access to your account. Here are some steps to follow:

• Contact Your Card Issuer: The first step is to call your credit card company. They will tell you why the card is restricted and how to lift it.

• Address Missed or Late Payments: If the restriction is due to late payments, make the overdue payment as soon as possible. You may need to bring the account current before the restriction is lifted.

• Reduce Your Credit Balance: If the restriction is caused by exceeding your credit limit, pay down the balance to bring it within your limit. In some cases, the card issuer may offer a temporary credit limit increase.

• Resolve Suspicious Activity: If the restriction is due to suspicious or fraudulent transactions, you may need to verify your identity and confirm authorized purchases. Once verified, your card will usually reactivate. You can sign up for fraud and security notifications to get notified of suspicious activity in your account.

• Update Account Information: If the restriction stems from outdated or incorrect account information, such as an expired card or incorrect billing details, updating this information will usually resolve the issue.

• Request a Review: For restrictions related to a card issuer's account review or potential violations, you may need to discuss your financial situation or usage patterns with them. In some cases, offering explanations or additional documentation may help resolve the issue.

• Dispute Fraudulent Activity: If the restriction is tied to fraud, work with your issuer to dispute unauthorized transactions. They may issue a new card while investigating the fraudulent charges.

• Monitor Your Credit: Review your credit report to ensure no negative marks occur during the restriction period. You can dispute errors with the credit bureaus.

By quickly addressing the reason for the restriction and communicating with your card issuer, you can restore access to your card, prevent any long-term impact on your credit score, and build a strong credit profile.

Avoiding Credit Card Restriction

To avoid credit card restrictions, manage your card responsibly and stay vigilant about your account activity. Here are some tips to help prevent restrictions:

• Make Timely Payments: Always pay your credit card bills on or before the due date. Setting up automatic payments or calendar reminders can help ensure you never miss a payment.

• Monitor Your Credit Utilization: Keep your credit card balance below your credit limit. Aim to maintain a utilization rate of 30% or less to avoid overextending your credit.

• Keep an Eye on Transactions: Regularly review your account activity to catch any unauthorized or suspicious transactions early. Reporting these immediately can prevent your card from being restricted due to fraud.

• Avoid Exceeding Credit Limits: Be mindful of your credit limit and avoid going over it. Some issuers may allow over-limit spending, but it can trigger restrictions or additional fees.

• Update Account Information: Ensure your account details, such as your billing address and contact information, are always up-to-date to prevent any unnecessary security holds.

• Stay Within Your Card Agreement: Read and follow the terms of your cardholder agreement. Avoid using your card for prohibited activities like illegal transactions, as this can lead to immediate restrictions.

• Set Up Alerts: Many card issuers offer alerts for low balances, high spending, or unusual activity. These alerts can help you take immediate action to avoid restrictions.

• Check for Fraud Alerts: If your card is linked to a fraud detection service, promptly address any alerts about suspicious activity to prevent a temporary freeze.

Consequences of Repeated Restrictions

Repeated credit card restrictions can have negative consequences that may affect your financial health and relationship with your credit card issuer. Here are some potential outcomes:

• Damage to Credit Score: Repeated restrictions from late or missed payments or exceeding your credit limit can lead to a lower credit score, which impacts your ability to obtain loans or new credit in the future.

• Increased Fees and Penalties: Each restriction may come with fees, such as late payment fees, over-limit fees, or interest rate hikes. Repeated infractions can lead to more financial strain as fees accumulate.

• Account Closure: If a card issuer sees a pattern of financial irresponsibility, such as frequent restrictions, they may choose to permanently close your account. This can reduce your available credit, increase your credit utilization, and further hurt your credit score.

• Higher Interest Rates: Card issuers may raise your interest rate as a penalty for repeated restrictions, especially if they view you as a higher risk.

• Loss of Credit Card Benefits: Repeated restrictions may cause you to lose rewards, cashback, or other perks associated with your credit card. Issuers may also limit access to special offers or credit limit increases if they view you as a high-risk customer.

• Difficulty Obtaining New Credit: Repeated restrictions on your card may make it harder to get approved for new credit cards or loans. Lenders may view your history as a sign of financial instability, leading to rejections or unfavorable terms.

• Negative Impact on Relationships with Creditors: Frequent restrictions can strain your relationship with your credit card issuer, making it difficult to negotiate favorable terms in the future, such as interest rate reductions or credit limit increases.

Resolve restrictions quickly and work to prevent them from happening again by practicing good credit habits.

Manage Your Finances Responsibly with a KOHO Credit Card

Managing your finances responsibly is key to long-term financial success, and KOHO makes this easier with its range of credit-building tools and features like overdraft protection coverage. With a KOHO credit card, you can enjoy perks like cash back on everyday purchases, zero hidden fees, and real-time insights into your spending habits. KOHO’s user-friendly app provides personalized spending and saving plans, helping you set goals and stay on track to meet them without overspending.

KOHO also offers unique credit-building opportunities, such as paying for everyday expenses with a virtual credit card, like your cell phone bill, all while strengthening your credit profile. With virtual cards and top-tier cybersecurity features, KOHO ensures your financial information stays safe, giving you peace of mind as you build better credit. Whether you're working to improve your credit score or simply want to take control of your budget and save for the future in a high-interest savings account, KOHO provides plans for spending and saving to manage your finances responsibly and successfully navigate your financial future.