Reducing Limit on K&Co Account

Nicki1968

After lurking an reading various stories about high credit limits I have just reduced my credit limit on my K&Co account from £10,000 yes you read that right, to £4,000 having read on here that having a large amount of unused available credit is harmful to how lenders see you.

I have now just read on another post someone who did the same with their credit card, they requested limit be changed from £12k to 5k an there % of usage has now gone up significantly an they have now been turned down for car finance due to using a large amount of credit.

I am in the process of trying to get my credit file looking better as hoping to move this time next year.

Can some one tell me if I have actually done the right thing or not?

Thanks in advance.

Nasqueron

If you have an UNUSED limit, your % of usage is zero (so pay off in full every month = perfect)

If you have a lot of balance as per that other post then the total % usage will be higher as say 4000/12000 is 1/3 and 4000/5000 is 4/5 but I doubt they were turned down for that reason alone regardless of what the salesman said - chances are they didn't leave it long enough (at least a month is needed, maybe 6-7 weeks depending on when you do the change and when the CRA update their records) so it still looked like that had a lot of credit.

Plus in the simplest terms would you as a lender rather have someone with zero balance who pays off every month in full or someone who borrows a lot and can't pay it back in full (and thus is more likely to struggle to keep up with car payments?)

Nicki1968

Nasqueron wrote: »

If you have an UNUSED limit, your % of usage is zero (so pay off in full every month = perfect)

If you have a lot of balance as per that other post then the total % usage will be higher as say 4000/12000 is 1/3 and 4000/5000 is 4/5 but I doubt they were turned down for that reason alone regardless of what the salesman said - chances are they didn't leave it long enough (at least a month is needed, maybe 6-7 weeks depending on when you do the change and when the CRA update their records) so it still looked like that had a lot of credit.

Plus in the simplest terms would you as a lender rather have someone with zero balance who pays off every month in full or someone who borrows a lot and can't pay it back in full (and thus is more likely to struggle to keep up with car payments?)

So my understanding is based on my other debt I won't actually have done myself any favours, apart from I have lessened the risk of running up a possible 6k on top of what I already owe, so I just need to chip at the other debts like I have been doing

shortcrust

No one knows. For most of us there's no way of knowing how any one lender's view of you will be altered by a reduction of available credit. Some will see you more favourably because they worry about lending to people with lots of available credit, other will see you less favourably because they're more focussed on % usage. They consider all this stuff in the context of all your other details and history.

The guy with that car finance doesn't know that the decision would have been any different if he hadn't reduced his available credit.