Should I pay off?

claret_mike

Hi

I received a letter from my cc company advising that they were increasing rates and if I didnt accept then they would effectively freeze my card against using further, which is no problem.

I have been reading that having available credit available improves credit scores (which again, my credit history is good but my score seems to be impacted by this issue from what experian is telling me) etc - so my question is that now I am down to may last £80, do i just now sit on this paying min payments each month to keep the appearance on my credit file as though I have a large amt of credit available(even though I couldn't use even if I wanted to) or do I pay off?

I have another CC which is near it's limit, which I am now focusing on to reduce. I will be at around 30% use of credit card balance within next 6-9mths. Where if I pay off this CC, it will only be 50% of my overall credit availability.

Any thoughts?

grumbler

claret_mike wrote: »

...do i just now sit on this paying min payments each month to keep the appearance on my credit file as though I have a large amt of credit available(even though I couldn't use even if I wanted to) or do I pay off?...

How large is large?

And paying off, unlike closing a CC account, doesn't affect the available credit.

claret_mike

Well there will be 9k limit and I have £80 on there.

So have I misunderstood avail credit then? I thought if you had credit available and you were not utilising it, it will be better should i need to apply for credit in the future as it looks like I am not living beyond my means on credit that is designed for short term debt.

Clearly, I could pay this card off, but as soon as I do, the company will close the card down and I will have 1 credit card left with 90% of the card being utilised (0% rate).

I will be able to reduce this down to 30-40% within 6-9mths and I have no plans to need to borrow any money within that period, however, I forsee that within a year, I will need to get a newer car as my progression at work will require that I have a vehicle (car allowance paid) and I am just trying to work out whether paying my frozen card off is going to make much difference?

The_Boss

Why not keep the card AND pay it off? An interest rate increase wouldn't affect you if it is not being used or used for small purchases and paid in full.

claret_mike

The company (virgin/mbna) stated that they were increasing the APR from 16.9 to 24.9% on the card. I had 2 choices - either accept and keep the card fully functional with the ability to continue to spend etc or decline the increase but as a result, the card could not be used and upon clearance of the balance, the card would be shut and I would not be considered for 12mths for another card..

I decided to keep the current rate thinking that would be the best thing as I knew I was looking to pay off and minimise interest payments.

I have cleared off a bit sooner than expected due to payrise and having been reading the forum, I have come across how lenders look at you and now think that it may be a mistake to repay the £80 as it will close the account automatically - I have no say in it. I would prefer to get the other credit card down a lot before even contemplating closing this card just in case my promotion comes sooner than expected and I need to get a car on finance at a later date with the car allowance I will be entitled to.

The_Boss

What is your limit on the other card and do you have any other credit at all?

UsetheFORCE

I am a little confused, if I have read it right then you intend to close the card because you currently will have to pay about 50p extra interest a month on your outstanding balance of £80???

If this is correct then why are you wanting to shut it at this present moment? Surely not because you will have to pay 50p extra a month on your balance and even less on a decreasing balance???

I would accept the rate change and pay off the balance thus keeping the account 'live'.

claret_mike

No, I was at just under 8k when I received letter. I got a substantial payrise about 2 weeks after I made my decision to not accept on the basis it was an increase on my mthly payment and I wanted to make sure my payments were not just going against the additional interest.

My £80 is where I am now so hopefully that clarifies.

I have other credit in addition to this card

1 x mtg
2 x loans
1 x credit card
1 x overdraft, which I go into every month, even though my credit file reports an increasing credit balance on there?

I will be completely out of my overdraft by end of May.

I have been overpaying mtg by about £160 per month for last 10mths, which I have stopped as I want to focus this money on the higher apr debts.

My other CC is £11k with £12500 limit.

I will be able to get this down to 5-6k within next 9mths.

This is what experian is telling me...

The positives..

Your most recent mortgage account has been running for over 12 months
The value of your highest credit limit indicates a lower risk
The age of your accounts indicates lenders are likely to view you as lower risk
You have a significant amount of successfully settled non-mail order accounts

The negatives

The balance of your unsecured lending could indicate a higher risk.
The usage of your available credit indicates a higher risk
The number of credit accounts you are using is high.
Your borrowing on regular instalment credit has not reduced significantly over the last 12 months.

The last one was because rather than pay off the credit card, I put in a savings account and it was about 3 weeks ago when I made a lumpsum payment to the card. In hindsight, I should have probably paid it regularly off but I wasn't aware of this kind of thing. I always assumed if you were a good payer then that was what most mattered.

The_Boss

I would personally have kept both, but it should be ok in 6 months if you are paying that much debt off and reducing balances of loans. So pay off the Virgin card asap to close it. Assume you will not need credit in the meantime though? If so, you may have problems.

Do NOT decrease the credit limit on the card you are keeping though as you pay it off.

claret_mike

Regardless of whether I need the credit, Virgin will not allow me to use any of it due to declining the rate increase.

My view was that in say 9mths time my credit file would show

Virgin CC - 9k limit - £80 bal (assuming that they don't amend that to my balance going forwards)
Barclays - 12.5k limit - £5/6k balance.

Total limit of £21.5k with balance of around 6k bal rather than £6k bal against a limit of £12.5k

zerog

claret_mike wrote: »

Regardless of whether I need the credit, Virgin will not allow me to use any of it due to declining the rate increase.

My view was that in say 9mths time my credit file would show

Virgin CC - 9k limit - £80 bal (assuming that they don't amend that to my balance going forwards)
Barclays - 12.5k limit - £5/6k balance.

Total limit of £21.5k with balance of around 6k bal rather than £6k bal against a limit of £12.5k

Why didn't you just accept the rate increase and then pay off in full every month, thus making the rate irrelevant?