Is it a good idea to reduce credit limits?

ColinColinson

I have various Catalogues with various credit limits.

Is it a good idea to reduce them?

The first catalogue I ever got has a limit of £5,000. I have never had a balance above £400, I wouldn't want to either. Would reducing this to around £1,500 be a good idea for my credit rating?

I also have a couple which I got in the more recent years and am going to cancel them. They have small limits and I don't use them.

I'm just not sure about the debt to credit ratio and all that type of thing. But I don't want to have huge limits that I don't need causing problems for future financial requirements.

char2289

I just reduced lots of my limits cos I had about 17k limits on various catalogues, CCs, balance transfers and od and about 7k debt. I do think the more credit you already have available lenders may not offer you new credit. I also cancelled argos store card as I rarely use it anyway. Only did this recently so will see if it betters my credit.

Tixy

Depends on what other limits you have on accounts, your income and what products you are likely to be applying for.

I doubt that a £5k limit will cause you much of an issue. But equally if you never owe more than £400 then reducing it to say £2k also won't be likely to cause an issue.

In terms of the accounts you are no longer using at all, I would close them.

Really its almost impossible to second guess what a particular potential lender would prefer to see.
As a very general guidance I'd try to keep your debt at no more than half your limits and your limits at no more than half your annual salary. But there are people with far higher ratios for both that have no problems getting credit.

InsideInsurance

ColinColinson wrote: »

I have various Catalogues with various credit limits.

Is it a good idea to reduce them?

The first catalogue I ever got has a limit of £5,000. I have never had a balance above £400, I wouldn't want to either. Would reducing this to around £1,500 be a good idea for my credit rating?

I also have a couple which I got in the more recent years and am going to cancel them. They have small limits and I don't use them.

I'm just not sure about the debt to credit ratio and all that type of thing. But I don't want to have huge limits that I don't need causing problems for future financial requirements.

Each lender has their own preference and so there is no universal truth.

Generally you need to try and balance three things:

1) Utilisation rate - the limit to outstanding debt ratio, the lower the better

2) Total available credit (to income ratio) - the lower the better

3) Highest limits - the higher the better, shows trust from others

So basically if you had £10k of limits it's better if thats from one or two providers than a dozen.

The other consideration is that catalogue companies are traditionally (or at least in my day they were) seen as sub prime lenders. Not as bad as having payday loans on your file but certainly a lot worse than a prime credit card