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Applying for a lower credit limit
sprintstar
Posts: 175 Forumite
in Credit cards
I have a couple of cards with a frankly frighteningly high credit limit, that have balances that are a lot less than the limit. I didn't apply for or expect such a high limit, but it they were raised automatically after I had the cards for a couple of years, I think they smelt blood when they saw I was only paying off the minimum each month. Anyway does anyone have any experience of applying for a lower credit limit, is this even possible? Would this impact on my credit rating at all? Thanks
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Done it several times, just contact the Credit Card companies and ask them to reduce the limit, they won't refuse. As far as affecting your credit rating it should 'theoretically' improve it, as when you go to apply for additional credit you have less lines of credit available......
Theoretically if you were having to apply for loans etc. at the moment you might not be getting the best rates due to the high levels of credit available to you making you a more 'risky' character.0 -
Originally posted by sprintstar
I didn't apply for or expect such a high limit, but it they were raised automatically after I had the cards for a couple of years, I think they smelt blood when they saw I was only paying off the minimum each month.
You don't say which cards are involved, but many lenders routinely raise credit limits, providing you keep within the terms and conditions.... does anyone have any experience of applying for a lower credit limit, is this even possible? Would this impact on my credit rating at all?
IMO, your concern about your credit rating is well-founded. Lowering credit limits is not a strategy recommended anywhere in Martin's articles.
Whilst it can be a good idea to close unused credit cards, lowering the limit on a card will seldom improve your credit score and sometimes has the opposite effect!
Closing a card leaves a record on your credit file which persists for 6 years and, providing the payment record is good, contributes positively to your credit score.
In contrast, a request for a lower credit limit, leaves no record of the higher one. Consequently, those searching your file, see a longstanding customer saddled with a low-limit card or, where the card's in use, a customer who has borrowed the maximum allowed on a low-limit card! This may signal over-commitment.People who don't know their rights, don't actually have those rights.0 -
If you do reduce the limit, dont do it by any more than a quarter.
If you have tonnes and tonnes of credit, go straight to closing a card. Or at most two.0 -
Thanks everyone, what I plan to do is transfer the remaining balances onto one card, and cancel the rest (they're already cut up to be honest, just waiting to make that final phone call!). It will take me close to the limit on that one card but I really didn't like having the thought of having so much credit so easily available, so that'll be a weight off my mind.0
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Moggles wrote:IMO, your concern about your credit rating is well-founded. Lowering credit limits is not a strategy recommended anywhere in Martin's articles.
Moggles, I'd have to say that as far as I can see Lowering credit limits is not a strategy covered in any of Martin's articles recommended or otherwise? Martin mentions cancelling unused cards but I can't find any article where he touches on the subject of too high credit limits. The closest he comes is the statement "Access to too much credit, even if it isn't used, can be a problem."Moggles wrote:Whilst it can be a good idea to close unused credit cards, lowering the limit on a card will seldom improve your credit score and sometimes has the opposite effect!
Closing a card leaves a record on your credit file which persists for 6 years and, providing the payment record is good, contributes positively to your credit score.
In contrast, a request for a lower credit limit, leaves no record of the higher one. Consequently, those searching your file, see a longstanding customer saddled with a low-limit card or, where the card's in use, a customer who has borrowed the maximum allowed on a low-limit card! This may signal over-commitment.
I'm not sure I agree with you there Moggles, according to you reducing your available credit will sometimes have a detrimental effect on your Credit Score?, the most important thing for a lender is stability ie lived at the same address for a period of time, been with an employee for a period of time etc.
You say that the person searching the credit record would see that the applicant has maxed out a low level card, but I would say that as long as you have a good credit record they would not necessarily pay attention to this.
Why? because the 'payments record' shows how you have handled your account over a period of time (ie that you have never missed a payment), whereas the balance on your card is taken at a fixed point in time.
Moggles, if this had such an affect, presumably there must be minimal accepted applications for Credit in say January as a large proportion of the population must appear to have abysmal credit ratings due to high credit card balances as they would have just received the statement for Christmas spending?0 -
Oh and of course, by transferring the balances to one credit card you will in all likelyhood incur a balance transfer fee, whereas there would be no charge to reduce the limit0
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Moggles wrote:Consequently, those searching your file, see a longstanding customer saddled with a low-limit card or, where the card's in use, a customer who has borrowed the maximum allowed on a low-limit card! This may signal over-commitment.
Martin's articles about maximising credit limits are largely written from the point of view of stoozing. If you're not planning to use a card again then yes the sensible thing is to cancel it. If you've got a card that you use for a specific purpose but never go anywhere near the limit, ring them up and get the limit reduced to the maximum that you need. This effectively does the same job as cancelling unneeded cards, as it's removing unneeded credit from your file and therefore allowing other lenders to lend you more (should you need it).
Personally I think card companies raise limits almost to force customers to stay loyal. If your card issuer knows you're a good customer, always pay on time, etc I could see they might raise your limit deliberately to reduce the possibility of you being approved by another company, effectively trapping you in their service and unable to switch to someone better. Of course this is my opinion only, as I don't work for a credit card company0
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