Are low-limit cards hurting my credit report?

JimmyTheWig

In years gone past I was a stoozer. Had various cards with limits in the £6k - £14k range.
Then the opportunity for stoozing dried up with the credit crunch, fall in savings interest rates and changes to Egg Money so I haven't stoozed for a while.

Two years ago we applied for extra borrowing on our mortgage (taking us up to the limit of what we could get from a high street lender) for a loft conversion and I also had fraud on a current account that showed on my credit report as being my fault until a few months ago (grrr). This was also in a time where credit was getting scarcer.

For one or more of these reasons the limits on my credit cards were slashed.

I now have three credit cards...
1. Barclaycard (former Egg Money). Limit £1,200. Reduced from £6,000 to £700 in Feb 2011; increased to £1,200 in July 2012.
2. Santander. Limit £550. Reduced from £13,800 in September 2010.
3. HBOS. Limit £500. Reduced from £11,500 in August 2010.

I use the Barclaycard for spending each month (cleared in full). I don't use the other two.

Do people think I should close the Santander and HBOS accounts? Do the low limits make it look like I am a risky bet? Do the reductions in limits make it look like I am a risky bet?

Or would there be any merit to switching to using the cards and build up the limits on them that way, like I have recently with Barclaycard?


I know that no-one knows the answers and that all companies score differently, but would be interested in people's thoughts.

My credit report is now completely clean.

bengalknights

They would have a better impact on you, although most scores will be based around debt/income ratio

JimmyTheWig

So you're suggesting keep the cards, bengalknights?

gglaze

Hi, interesting post, I'm looking forward to seeing how this turns out - I have a couple cards in the same situation, low limits and not really used, but not sure if they are hurting or helping.

Regarding the "debt/income ratio" - does anyone have any guidelines on what could be considered a "good" ratio and what could be a "bad" ratio? What are the typical ranges here?

Thanks!

Plxply

gglaze wrote: »

Regarding the "debt/income ratio" - does anyone have any guidelines on what could be considered a "good" ratio and what could be a "bad" ratio? What are the typical ranges here?

Nobody can really tell you this as each lender scores it differently, but it comes down to what they predict if you use all your available credit at once and if you're able to pay it back. Although it isn't for the UK in the US they have the FICO score which is used by lenders, you can use this as a guideline as I imagine UK lenders have a similar weight:

https://en.wikipedia.org/wiki/FICO_Score#Makeup_of_the_FICO_score

YorkshireBoy

JimmyTheWig wrote: »

...would be interested in people's thoughts.

I wouldn't want low limit cards on my credit file. Nor, now that they're sharing far more information these days, would I want a major reduction showing on my credit file.

It 'could' send out the wrong signals to prospective lenders.

It's only happened to me once, years ago, when I'd come to the end of a £13K stooz (muled through Egg Money) with Co-op. As soon as I'd cleared the balance...literally 3 days later!...they wrote to me to inform me they had cut the limit to £500. I called them up and spoke to an underwriter, expressing my concerns about the damage this could cause to my file, and they agreed to reinstate the old £13K limit before closing the account and marking it as settled at the CRAs.

I try to look after myself these days by immediately closing a card down once I've (ab)used any 0% introductory rate. The only exception is my near £20K limit MBNA card, which I've had for around 6 years now...and currently enjoying yet another money transfer offer (12 months 0% on cash into my current account...for a 2% fee).

JimmyTheWig

Thanks YB. That's sort of the lines I was thinking on.
Presumably even if I cancel now the reductions will be shown in my history. But I'm guessing that closed accounts hold less weight than open ones?

[Nice of MNBA to give you 12 months 0% for a 2% fee. Especially on a near £20k limit! Don't they know who you are?]

YorkshireBoy

JimmyTheWig wrote: »

But I'm guessing that closed accounts hold less weight than open ones?

Maybe, but I'd imagine the passage of time would improve the situation as well.

[Nice of MNBA to give you 12 months 0% for a 2% fee. Especially on a near £20k limit! Don't they know who you are?]

I got the offer the day before LTSB launched their 4% Vantage offer. Projected profit is around £200.

It would have been rude not to...

JimmyTheWig

Update - have had a letter from HBOS to say they will be closing my account because I'm not using it.
Fair enough.

Have just converted Santander current account to 123, so may well convert my credit card as well. Haven't decided on that one yet, though.