Letter from Co-oP Bank(Credit Limit)

dggar

I receive a letter from the CooP bank dated 22nd Sept. regarding my credit card.


The relevant text is below:-


As a responsible lender we have recently reviewed your credit card account and have noted you do not regularly use the full limit available to you.

Having an unused credit limit on a credit card account registered in your name can negatively affect your credit score.

As such we are planning to reduce your limit, in line with your previous spending.


Can anyone tell me why an unused credit limit can affect my credit score?


They are proposing reducing my credit limit from £5000 to £3500 unless I contact them within 30 days.

Gizmo247

Co-op's motivation is for their own purposes, not your's. This is evident in the word "unused" rather than "excessive".

You are right that unused credit is not an issue for credit scoring just excessive credit. You could have £250 credit limit and only ever use £100 but that would be unlikely to make any difference in credit scoring.

Obviously someone has been given a task to improve the credit to reserves ratio for Co-op but are not professionally competent to hide their intentions. The Reader's Digest marketing team needed to find job somewhere. :-)

Archi_Bald

dggar wrote: »

Can anyone tell me why an unused credit limit can affect my credit score?

It is saying that when you apply for further credit (at Coop or anywhere else), your existing available credit will be taken into account. The lender might then decide that they would not give you any further credit at all, or just a smaller amount than you want.

If you are not planning to apply for any additional credit (loan, credit card, mortgage etc), you can safely ignore the 'warning' from the Coop.

An observation, though: overdrafts are a very expensive, and unsafe, way to borrow money. Why would you wish to borrow £5,000, or even £3,500, at huge costs, and take the risk that you might have to pay it all back in one go and with literally no notice?

eskbanker

Archi_Bald wrote: »

An observation, though: overdrafts are a very expensive, and unsafe, way to borrow money. Why would you wish to borrow £5,000, or even £3,500, at huge costs, and take the risk that you might have to pay it all back in one go and with literally no notice?

True but irrelevant, this is all about a credit card account!

Dobbibill

Found this on the main website here....

http://www.moneysavingexpert.com/loans/credit-rating-credit-score

It's number 20 on the list - Cancel unused credit and store cards

They can kill your application. Access to too much available credit, even if it isn't used, can be a problem. If you have a range of unused credit cards and lots of available credit, it could be a good idea to cancel some of them. This lowers your available credit and should help.

Hope this helps

DB

MABLE

I had a similar thing with Lloyds a few years back. They wanted to decrease my overdraft facility because of non use. It was being decreased from £10k down to £7.5. However I then used it for £200 in the coming weeks and received another letter stating as it was now being used they were not now going to decrease it. Made no sense to me.

CLAPTON

Dobbibill wrote: »

Found this on the main website here....

http://www.moneysavingexpert.com/loans/credit-rating-credit-score

It's number 20 on the list - Cancel unused credit and store cards

They can kill your application. Access to too much available credit, even if it isn't used, can be a problem. If you have a range of unused credit cards and lots of available credit, it could be a good idea to cancel some of them. This lowers your available credit and should help.

Hope this helps

DB

nevertheless many posters (including myself) have several large credit limits on our many CCs and never have problems getting new cards even though we don't get near the limits.
That's not quite the same as 'unused' of course, which have been known to be cancelled by the bank.

LplateSaver

OP I'd contact them and ask them not to if you still use the card. I've read on many sites how a low level of debt to available credit is good for your credit score. Some people on this website quote using 30% (which would be using £1500 of the £5000 limit monthly). I'm at 45% at the minute because I have a low limit so I'm guessing that's not great.

This is from experian

A large unnecessary credit limit can be a worry, so I do understand your concerns. And as this is credit you have already been granted, another lender could see this as virtual debt and factor it into their affordability calculations. But it’s much more likely that this is actually helping your credit score at the moment. Most lenders carrying out a credit check will be encouraged to see that another lender has trusted you with a high credit limit. Their credit scoring is also likely to assess what proportion of your ‘revolving’ credit (usually credit and store cards) you are regularly using. For credit scoring purposes we recommend using no more than 25% of your credit limits if you can. So if for peace of mind you do ask the card provider to reduce your limit to a lower amount, make sure this is greater than four times your regular monthly spending.

brewerdave

I have ridiculous amounts of "available" credit on 3 different cards -they all get used but I never get to more than 20% of the limit on any of them,frequently much less .......yet recently I had a letter about the one which gets used a few times a month -offering me an increase of a further £2k ! No idea how they carry out their evaluations ...but if I ever get a terminal diagnosis I'm really going to enjoy myself:rotfl:

nilrem_2

I have learnt from this thread! I have a £9000+ limit on my CC but never get anywhere near it, perhaps my highest monthly bill has been around £2000, mostly half of that or less. I always assumed that the fact that one had a high credit limit implied that they trusted you and it would bode well for your overall credit score!

(I like a high limit on my card in case I wish to make a major purchase.)

callum9999

nilrem wrote: »

I have learnt from this thread! I have a £9000+ limit on my CC but never get anywhere near it, perhaps my highest monthly bill has been around £2000, mostly half of that or less. I always assumed that the fact that one had a high credit limit implied that they trusted you and it would bode well for your overall credit score!

(I like a high limit on my card in case I wish to make a major purchase.)

While that specific bank may trust you, no other bank is going to trust you on the basis that they do!

MABLE wrote: »

I had a similar thing with Lloyds a few years back. They wanted to decrease my overdraft facility because of non use. It was being decreased from £10k down to £7.5. However I then used it for £200 in the coming weeks and received another letter stating as it was now being used they were not now going to decrease it. Made no sense to me.

Huh? They suggest they'll reduce it because you don't use it, you then use it so they don't reduce it. Makes perfect sense to me.

What people seem to forget is that the empty overdraft isn't just a number in a database to the bank - they still have to make sure they have enough funds to cover them (nowhere near 1:1, but over millions of pounds of overdrafts it will add up), which costs them money. It's only natural they'll seek to reduce them if they aren't being used.