Closing credit cards/reducing credit limits - an opposite view

The_Boss

For the reasons above basically - if you have a total debt of £6k with £10k limits (also in total) this looks a lot better than owing £6k and having £7k limits - to a potential lender, it looks like you are getting out of your depth because you are closer to your total allowed amount. They wont know that you may have reduced a card limit recently. Of course, they will see that you have closed a card recently, but a computer wont make that link.

UK007BullDog

That is interesting.

However could it be that you are superimposing your experience with your credit record onto others who might not be in the same boat as you?

There are not an infinite number of lenders out there and eventually a rate tart will have finished off the lot. The only way to get back in, is to cancel cards and wait for 6 to 12 months to then re-apply for the new best deals.

However your posts and thoughts have made me re-evaluate my cards and I will now just cull the ones with the lowest credit limit.

In 3 to 4 months I will go for a cashback card or points card and use that for my shopping and filling up the car.

UK007BullDog

Yes, but they can see that the closed cards were run exemplary so that might be a positive note. After 6 years all card details are supposed to fall off the Experian report anyway so any cards held longer than 6 years inactively could be canceled anyway?

The_Boss

UK007BullDog wrote:

Yes, but they can see that the closed cards were run exemplary so that might be a positive note. After 6 years all card details are supposed to fall off the Experian report anyway so any cards held longer than 6 years inactively could be canceled anyway?

It would be 6 years from cancelled. And the fact that I closed so many accounts that were perfectly run doesnt seem to hold much sway with lenders.

The_Boss

UK007BullDog wrote:

That is interesting.

However could it be that you are superimposing your experience with your credit record onto others who might not be in the same boat as you?

There are not an infinite number of lenders out there and eventually a rate tart will have finished off the lot. The only way to get back in, is to cancel cards and wait for 6 to 12 months to then re-apply for the new best deals.

However your posts and thoughts have made me re-evaluate my cards and I will now just cull the ones with the lowest credit limit.

In 3 to 4 months I will go for a cashback card or points card and use that for my shopping and filling up the car.

My credit record is flawless with many years of accounts showing perfect management and I was never rejected before the cull. I'm just trying to help others with a possible warning. I really hope it helps, since the normal advice is to close down accounts.

Totally agree with you in regards to new offers, its just a case of getting a good balance and not doing what I did - i.e. a massive cull at the same time and reducing credit limits. Maybe I should have reduced the limts on the cards down to £3-4k for Morgan Stanley and MBNA, and then closed one card per month instead of all at the same time.

What I have learnt is that it is better not to have lower credit limits if its going to showing that you are over 80% of your credit limit. The best level is probably nearer to 50-60%

The_Boss

I have now added this to the bottom of my first post to help new readers.

What The Boss advises

1. If you have several cards that you really want to close, maybe close one per month rather than all at once.

2. Do some maths before closure. Work out your current total used credit and total available credit, then work out the used as a percentage of available. So if you owe £6k and have total limits of £10k, then you currently have used 60% of your available credit. Now work out what the totals would be if you closed a few cards. If the new percentage is greater than 70%, I would advise not closing so many cards.

3. Lenders dont like to see people up and around their limits, so if you are rate tarting or stoozing its useful to keep one or two cards with a zero balance as it shows that you are not desperate for the money as you would have used these empty cards if you were.

4. Dont reduce credit limits if you plan on closing the card anyway.

5. Dont reduce credit limits if the same logic in number 2 follows

Chrysalis

I dont see any reason to deliberatly cancel cards or reduce limits given that in todays climate of automated credit ratings that it may not be possible to get them back again, better to have unused credit their as a buffer incase you need it.

Moggles_2

Thanks once again, Boss, for posting to help others.

Why are some people so keen to reduce their credit limits? This is not a strategy mentioned in any of Martin's articles!

In 10 years of credit card shuffling with more than 30 cards - not all at once of course - I have never, ever reduced a credit limit. (For an explanation, please see #27) and I have cancelled a card only after careful thought.

Obviously individual circumstances vary. There are no hard and fast rules but, IMO, MSEs need to weigh income as against the used and available credit at their disposal. As with so many things, it's all about balance and moderation.

michaels

I wonder whether having cards with low limits (perhaps relatvie to income) gets noticed on searches, thinki gout loud but if mbna see you have a cap one card with only 5% of income limit but they know generally cap one give 30% they might think there is some credit orthiness related reson for the low limit and respond accordingly?

JollyNolly

The_Boss wrote:

2. Do some maths before closure. Work out your current total used credit and total available credit, then work out the used as a percentage of available. So if you owe £6k and have total limits of £10k, then you currently have used 60% of your available credit. Now work out what the totals would be if you closed a few cards. If the new percentage is greater than 70%, I would advise not closing so many cards.

Would you say it could be detrimental to be using a lower proportion of your total available credit? I've calculated mine to be around 35% due to a ghastly LTSB card I have from way back, that has had a zero balance now for almost a year, and a credit limit of over 10K. I also have two other cards that currently have balances.