Does voluntarily reducing your credit limit affect your credit rating?

quidsout

Our credit limit on our Amex card has gradually doubled over the last 2-3 years.

Our average monthly spend is less than 10% of current the limit and we always pay each bill in full so incur no debt/interest on the card.

I am considering reducing our limit just in case we fall victim to some sort of fraud.

Would doing this affect our credit rating?

[Deleted User]

If you're only spending 10%, then go for it. Maybe drop it by 40% or so. Won't impact your rating.

Gromitt

quidsout wrote: »

I am considering reducing our limit just in case we fall victim to some sort of fraud.

Would doing this affect our credit rating?

Wouldn't have thought so, and if your going to be applying for credit anytime soon, it could help as your overall available credit will be less.

Don't drop it too low though, as it will not stop you from using the card - the bank will just apply £12 'over limit' charges. So if you normally spend about £500/month, set the limit to something like £3500, rather than £1000. Increasing the amount again usually involves a credit check, and isn't allowed for about 6 months following a decrease.

KGM_2

I've had a credit card with Amazon for some time, and been very impressed. However when I asked them by secure message to knock a few thousand pounds off my credit limit, while still keeping it comfortably higher than any closing balace for the last year - this was their reply (my italics, bold, and ... for spurious words chopped):

"Thank you for contacting us to request a reduction in your credit limit. ... By decreasing your credit limit this may have a negative impact on your credit rating, however, there is no liability on fraudulent transactions and I am unable to guarantee that your credit limit would be increased back to the same limit, if requested. Therefore, to complete your request, I need confirmation that you accept these conditions by either letting us know or by calling our 24 hour Customer Satisfaction department..."

This just seems unnecessarily vague to me... "may" - either it will, or it won't, surely they should know?

Tremour-88

It may effect your histroy depending on who credit searches you, by having a bigger limit you've got a higher available credit but a lower credit used % but if you lowered your limit you would have a higher used % which is slightly negative

Cell

I was reading yesterday that an ideal credit utilisation ratio is around 35%.

I have no idea if this is correct, but wherever I was looking at seemed quite clued up.

boogiemaster

Requesting a decrease in your credit limit can hurt credit scores

Dear Experian,
Your creditor raises your credit limit. As a consumer, you are not comfortable with the increase, and you would like to lower the credit limit. What impact does this have on the consumer's credit score?
- YLO

Dear YLO,
Actually, an increase in your credit limit can help your credit scores. So, unless you are just too tempted to charge up to the new limit, you should not worry about it.
The reason that a credit limit increase can help credit scores is related to something called your utilization rate, or balance-to-limit ratio. The lower your utilization rate, the less risk you represent to lenders.
To calculate your utilization rate add up all of your credit card balances and then add up all of your total credit limits. Then, divide the balance total by the limits total. If you have two credit cards with $5,000 limits, you have a total of $10,000 available.
If one card has a $5,000 balance and the other a zero balance, your utilization rate is 50 percent.
However, if the limit on one card is increased by $5,000, your limit total increases to $15,000. Your utilization rate immediately decreases to 33 percent.
You can ask your lender to reduce the limit or lower it to its previous level, but that likely won’t help your credit scores.
Thanks for asking.

- The "Ask Experian" team

Cell

Set against that is the counter-argument that if you have large amounts of unused credit when you apply for new products card and loan companies can be concerned that your available credit is large and that in theory you can max them all out, thus increasing the risk of debt distress.

I paid off my Egg Card and reduced the credit limit from £13,000 to £4,000 before it became Barclaycard because the APR - 28.9% meant that I was never going to borrow very much on the card, let alone £13,000!

I don't know what effect it had on my rating but to my surprise I did receive a Nationwide Credit Card at a decent rate with a fair 0% BT period, so it can't have been that bad, despiet having a fair credit utilisation ratio.

Sometimes it just seems to be in the lap of the gods.

CLAPTON

KGM wrote: »

I've had a credit card with Amazon for some time, and been very impressed. However when I asked them by secure message to knock a few thousand pounds off my credit limit, while still keeping it comfortably higher than any closing balace for the last year - this was their reply (my italics, bold, and ... for spurious words chopped):

"Thank you for contacting us to request a reduction in your credit limit. ... By decreasing your credit limit this may have a negative impact on your credit rating, however, there is no liability on fraudulent transactions and I am unable to guarantee that your credit limit would be increased back to the same limit, if requested. Therefore, to complete your request, I need confirmation that you accept these conditions by either letting us know or by calling our 24 hour Customer Satisfaction department..."

This just seems unnecessarily vague to me... "may" - either it will, or it won't, surely they should know?

You don't have a credit rating.

You have a credit record that shows details of your credit history.

Each time you apply for credit the potential lender uses their own set of criteria which includes your credit record and details from your application forms plus other information to assess whether they will offer to give you credit and if so at what interest rate and/ or credit limit.

There are thousands of such lenders; however can Amazon know (or indeed care) what all these lenders may or may not think about your credit limit with them?

waqasahmed

Whormsley wrote: »

Sorry but it CAN have a negative impact!

Firstly, a potential lender doesn't know who decreased the limit. Was it you? Or was it your CC lender because they thought you were a risk?

Plus, you're always covered for fraud on your card. No matter how much it is.

So if someone does commit fraud on your CC, it doesn't affect your credit rating?

waqasahmed

Whormsley wrote: »

What I meant was that if someone fraudulently uses your CC for £10 or £10000, you're always covered.

Some people don't realise this. They always get scared when they get a high credit limit in case someone spends it all!

Yup, I get that bit but will it affect your credit rating? I'd imagine that when people consider putting their CC limit down, the things to worry about would be

a) Fraud
b) Their credit rating

At least that's whats gone through my mind, but it seems fraud is covered but I don't know if it affects your CC rating. If it doesn't affect your credit rating, then I suppose there's no real need to drop it down