Should I reduce store card limits?

TeamNicholson

Morning all,

I have three store cards. Argos, littlewoods and next. I am in the process of clearing these debts and currently have £235 on littlewoods but a credit limit of £2,500 and my next account has a balance of £370 with a £2000 limit.

I am trying to repair a not so hot credit rating and I am wondering what the general opinion is on whether it is best to reduce them, cancel them when 0 balanced or keep them open with high credit limits.

What do you think?

carrielovesfanta

I think it depends how tempted you would be to spend on them. If you would be at all tempted, it's best to close them I think

mildredalien

I would pay them off and close them down - I would imagine the interest rates on those cards are ridiculous. Unless you could be 100% certain that you could use them sparingly and pay the balance in full each month, I'd think about an alternative credit card with a low limit if you want to keep one open to show you can manage your credit sensibly.

Millie_Millsters

carrielovesfanta wrote: »

I think it depends how tempted you would be to spend on them. If you would be at all tempted, it's best to close them I think

...and if you wouldn't be tempted, then you don't need them.

glasgowsaver2011

Reduce them

Pay them off

Then close them

Store cards are a con.

Credit cards are bad but have their uses. Store cards have limited use (10% extra off on sale items once a year)

TeamNicholson

Thanks for replies, I wont be using them. What I'm really asking is what will improve credit rating more, only having a small amount of available credit? Or will closing the cards look bad?

mildredalien

I don't think closing cards looks bad per se. It will probably be better to have a small amount on a credit card and pay the full balance off each month rather than minimum amounts on any card. As glasgowsaver pointed out, store cards mean you would be rebuilding your credit only use their store for possibly unnecessary items. Getting a general credit card and using it to pay for things you would buy anyway would be a better way to build up credit (again - make sure you pay the full balance each month).

DVardysShadow

TeamNicholson wrote: »

Thanks for replies, I wont be using them. What I'm really asking is what will improve credit rating more, only having a small amount of available credit? Or will closing the cards look bad?

In order of preference:

1. Maintain limit, pay off in full each month
2. Maintain limit, take balance to 0 twice a year
3. Close account
4. Maintain limit, pay minimums only and never take balance to 0
5. Reduce limits

That is just my take on it, although 2 and 3 could be equal. But there is no absolute about this as it depends on what any particular lender will make of it.

Reducing limits is probably bad, because it won't show whether this is voluntary or imposed - but in truth, I doubt that lenders ever actually impose reduced limits.

If you are scared you will spend back to the limit, then get rid. Otherwise keep them for the 10% off promotions if that is of interest to you, but pay off in full.

pheonixrising21

DVardysShadow wrote: »

In order of preference:

1. Maintain limit, pay off in full each month
2. Maintain limit, take balance to 0 twice a year
3. Close account
4. Maintain limit, pay minimums only and never take balance to 0
5. Reduce limits

That is just my take on it, although 2 and 3 could be equal. But there is no absolute about this as it depends on what any particular lender will make of it.

Reducing limits is probably bad, because it won't show whether this is voluntary or imposed - but in truth, I doubt that lenders ever actually impose reduced limits.

If you are scared you will spend back to the limit, then get rid. Otherwise keep them for the 10% off promotions if that is of interest to you, but pay off in full.

Lenders take the ratio of available credit to salary as a big indicator of risk when deciding if you can have credit. For example if you have a salary of £20k, lenders won't like you having more than say £10k available (used or unused) credit. Depending on the OPs other commitments. It looks like the OP has almost £4k of unused credit. Thats a big chunk of credit that the OP has instant access to. My opinion, reduce them now, pay them off then close.

How can closing accounts be bad for your credit rating? People close accounts all the time. This entire board is dedicated to closing/reducing accounts. There is a mortgage free boarde those - are those people on there aware they are trashing their credit rating by paying off their mortgage early? No! because they aren't.

What lender ever says, no we can't lend you any money because you pay it back, on time and even early, and then say lend me less next time!

DVardysShadow

pheonixrising21 wrote: »

Lenders take the ratio of available credit to salary as a big indicator of risk when deciding if you can have credit. For example if you have a salary of £20k, lenders won't like you having more than say £10k available (used or unused) credit. Depending on the OPs other commitments. It looks like the OP has almost £4k of unused credit. Thats a big chunk of credit that the OP has instant access to. My opinion, reduce them now, pay them off then close.

How can closing accounts be bad for your credit rating? People close accounts all the time. This entire board is dedicated to closing/reducing accounts. There is a mortgage free boarde those - are those people on there aware they are trashing their credit rating by paying off their mortgage early? No! because they aren't.

What lender ever says, no we can't lend you any money because you pay it back, on time and even early, and then say lend me less next time!

Well, if you are going to close an account, then pay it off and close it. Absolutely no point in reducing the limit - it just creates a reason for an adverse inference where there need be none.

And as for closing an account, making out that I said it was bad for credit rating is totally baseless. I am saying that it is not so good as having credit which you are managing [1 and 2].

Of course, the account should be closed if you want better credit from elsewhere. But OP does not express a concern about that.

TeamNicholson

Thank you for all your replies. I perhaps should have clarified my position better. I have no defaults, ccjs etc and only one or two late payments due to direct debit screw ups. I do have a lot of unsecured debt which I am trying to get paid of in order to secure further lending in the form of a mortgage in the next 4 years or so.
What I gather from the advise so far, is that lenders may not be inclined to provide me with credit if there is the potential for me to work up a lot of etc debt. Does this also applied to secured lending such as mortgages?