Credit Card Limits - To lower or not to lower?

Gambit

Afternoon all,

I've been reviewing my account and cards and wondering whether I should decrease my credit card limits. I use different credit cards for different things eg. Egg for monthly spending due to the 1% cashback but also have a Post Office CC when I go abroad for the fee free oversea transactions but they all have pretty high limits (£3-5k) and I normally only use a fraction of that. A friend told me that it's better to lower your credit card limit so that you are using more of it at anyone time as it will show companies you can borrow and pay back money efficiently. ie. if I use £300 a month of my Egg card on a £3000 limit this would work out as 10% but if I lowered it to £600 then I would be using 50% of my limit.

Hope this makes sense and hope this isnt just another of those financial myths but thought I'd ask as I'm sure some MSE's must know the answer to this

Thanks, Pete

dylanuk

I would of thought if you were spending £300 of a £600 credit limit it would look like the credit card issuer doesn't trust you with very much credit.

Especially considering a lot of lenders are cutting credit limits of a lot of people to minimise their risk.

The only reasons you might want to reduce your credit limits are:
- Minimise the risk of fraud (if your card is stolen they can't spend £3000)
- To free up the credit you can 'reasonably afford' to borrow based on your income if you want to apply for a 0% deal for example.

Dave101t

erm, what about those times you need to buy something immediatly and dont have the readies? my cc is a 6k lmit, i usually only spend 200/month but one month i spend 3k.
always best to have it available than be charged unauthorised overdrafts.
if your otherwise a 'minimum risk' i.e. you never default on payments, then keep it as your demonstrating nothing to the cc company.

CannyJock

If you reduce a credit limit there's nothing on your credit report that indicates that the change in credit limit was at your request rather than the card provider reducing it because it considers you to be a risk ....

Personally, I wouldn't reduce it.

Not sure where your friend's getting his ideas from, but never heard that one before. Definitely not my experience.

hugheskevi

Your friend may be thinking about companies which score you more highly if you have access to a low amount of credit - some companies don't like you to have access to tens of thousands of pounds of credit, even if you aren't using it.

I had the same Egg cashback card which I requested a lower limit on a year ago. I've got an excellent credit record, no unsecured debt and always pay 100%, but last month was getting up toward the credit limit so asked them to increase it. They refused, which was annoying.

I wouldn't be inclined to reduce your Egg limit at all...£3,000 isn't a massive credit limit and you might well need it one day, and it is a good cashback card to have a decent limit on. You could reduce the limit on your other card a bit if you felt like it, but I don't see any particular need. If you do, it should be as part of a wider strategy to polish up your credit score - see the link below if you haven't read it before:

http://www.moneysavingexpert.com/loans/credit-rating-credit-score#improve