Can card companies lower your credit limit?

Sean-Cath

Hi,

I've just had a PPI payout (about 4k) and i'm going to use it to almost pay off one of my 4 (maxed out) credit cards. I will however still need access to this credit as times are hard. Is there a chance that if I pay off 4k of a maxed out card with a limit of 5k that they could essentially say "thanks for that" then lower my limit (to say 1k) thus denying me access to that credit.

Does that make sense?

InsideInsurance

They are entitled to decrease the limit if they want, as long as your accounts in good standing then I suspect it isnt that common. I never bought PPI but did clear all my maxed out cards from other funds and no one reduced limits

molerat

If the PPI payout comes from the same banking group that the card is with then there is a fair chance of them lowering the limit otherwise probably not.

Sean-Cath

Thanks guys, just to be clear the PPI refund and the cards are from different banks so i'm not talking about the card debt somehow been offset against a refund. I'm just curious to know if credit card providers can (or do) lower credit limits when a previously maxed-out card is paid off (or almost paid off)

michaelvintner

They can lower your credit limit anytime they want. However in my experience if you have managed your account well in the past and then clear it totally they will normally leave the limit as it was.

I cleared about 4 credit cards at the start of the year and not one reduced my credit limit. In fact one has recently put it up by £1000.

gglaze

Yes they can and will if times are tough - I've had a similar situation in the past. However, when it happened to me it was just at the height of the recession when things were getting really bad and all the card companies were looking for ways to take advantage. Also I had fairly high limits on the cards that got reduced - I think one went from about 12k to 7k (I had made a payment of 4k or 5k or so) and another from about 5k to 3k (I had made a payment of 2k or so). Since then I've seen the limits on these gradually creep back up a bit, but still nowhere near the limits I had before.

The one I remember most acutely was the barclaycard, because I recall they decided right after my payment to lower it to an amount that was just barely above the remaining balance after the payment - like I had to actually calculate and be sure there was enough margin left there for the (low rate promo) interest to fit in the following month.

I guess it depends on your creditworthiness, how large your credit line is, and how tough times are at the moment for the bank.

izools

In my experience card companies are more likely to lower your limit if:

You have had your account close to (i.e at more than 70% of) your limit for a while - 6~12 months or more,
And / or you tend to pay off small amounts each month not really making any headway in to the balance (i.e. your balance has not reduced significantly in the last 6~12 months)

If this applies and you clear a chunk then they are more likely to reduce your limit than if you either clear your balance in full each month, or have only had a high balance near the limit for a month or two.

An account held near it's credit limit for a prolonged period is one of the most commonly accepted signs of debt stress.

bigadaj

There are also several reasons why the provider might choose to lower a credit limit and not always because of risk or large balances. I recently closed an account with sainsburys that I had for fifteen years, primarily as I now have the capital one cash back card and so no more need for the sainsburys MasterCard. This coincided with them reducing my limit from about four thousand to twelve hundred as they said that this reflected my spending and I always clear the balance. In my instance it appears to be the fact that I'm not profitable, however another issue is that the banks have to hold reserves based on the line of credit they extend, and so it can cost them money to give people large limits.

hushhush

bigadaj wrote: »

There are also several reasons why the provider might choose to lower a credit limit and not always because of risk or large balances. I recently closed an account with sainsburys that I had for fifteen years, primarily as I now have the capital one cash back card and so no more need for the sainsburys MasterCard. This coincided with them reducing my limit from about four thousand to twelve hundred as they said that this reflected my spending and I always clear the balance. In my instance it appears to be the fact that I'm not profitable, however another issue is that the banks have to hold reserves based on the line of credit they extend, and so it can cost them money to give people large limits.

This is what the FOS told me.

When a bank gives you a credit limit they are effectively giving you that total amount in one hit, if you like, they assume you are going to go out and spend the lot and they will cover you for that, so in short, if they give you a limit of £3000, that is now yours.

In spite of the fact you may only ever use a small proportion of that balance and be a good customer and clear your balance each month as far as the bank is concerned you have got £3000.

So they review your account and look at the trend and if you average a much lesser figure they sometimes reduce that limit to a much lower amount based on your average.

This is one reason, there are other factors relating to other things such as adverse info, a sign of the times and stuff like that.

redpete

Sean-Cath wrote: »

I will however still need access to this credit as times are hard. Is there a chance that if I pay off 4k of a maxed out card with a limit of 5k that they could essentially say "thanks for that" then lower my limit (to say 1k) thus denying me access to that credit.

If they do reduce your credit limit they are probably doing you a favour.

missile

CC companies can review your limit whenever they choose even if you have outstanding balance. I do not understand why you would want to protect your limit, but maxing out your card would not do that.

I will however still need access to this credit as times are hard.

Paying interest on four maxed out cc is making it harder.