Advice Needed - Cancel or not to Cancel

hhcaffers

Hi, I have been watching MSE now for a couple of years now but never posted. Through following the advice posted on here I have managed to pay off £25,000 over last 2 years (still a long way to go but getting there) and all outstanding amounts are on low or no interest which leads me to my question. I have finally paid off my Egg card (has a £10600 limit), is it better for my credit rating to now cancel the card or hold onto it with a zero balance?

Thanks for taking the time to read!

izools

Can't say "YES" or "NO" directly, but your targets should be:

Add up your limits. Your cumulative limit to annual income ratio should be under about 50%
Add up your balances. Your cumulative balance to limit ratio should be under about 66%.

If you can tweak the limit(s) or close the Egg altogether to get close to these to figures then that's a good move. Depending on the math it might be better to just reduce the limit on it.

torrenter

What do you mean by cumulative limit izools? Do you mean one's total credit limit, across all lines? And the same question with respect to cumulative balances?

izools

Yes, exactly.

Say you have three cards.

Card 1 has a 2500 limit and 2000 balance
Card 2 has a 4800 limit and 1500 balance
Card 3 has a 8000 limit and 750 balance

Your cumulative limit is 15,300 and your cumulative balance is 4250 giving a debt to limit ratio of 28%.

If you have a salary of 25,000 this gives you a DTI (debt to income) of 17% and a Limit to Income of 61.2%

So in my example the limit to income is a bit high and the applicant would stand a higher chance of approval with a lower limit to income and higher debt to limit ratio

UnderControl_2

Izools

When you refer to annual income, do you mean before or after tax?

Thanks.

torrenter

I'm guessing he means Gross (Before Tax). The salary you would mention upon credit application is usually, or should be Gross, I believe.

torrenter

izools wrote: »

Can't say "YES" or "NO" directly, but your targets should be:

Add up your limits. Your cumulative limit to annual income ratio should be under about 50%
Add up your balances. Your cumulative balance to limit ratio should be under about 66%.

If you can tweak the limit(s) or close the Egg altogether to get close to these to figures then that's a good move. Depending on the math it might be better to just reduce the limit on it.

A quick question izools. How did you come to the 66% mark for the Debt to Limit ratio? Are you talking from experience or from what you've read. You see, I've seen several websites saying never go above 30% utilisation, but I'd think that's rather a low percentage. The majority of your credit is not actually being used at 30%, or even 50%.

The same question to the Limit to Income percentage of 50%.