Credit limit reduction. A mistake?

DM100

Hi everyone,
A friend of mine recently advised me that I should reduce the credit limit on my card from £15,000 to £2000 as its not good to have lots of available credit (I use this card to pay off my Netflix account on a monthly basis and nothing else). Having done that, it would appear that he was wrong from having looked online. I have £700 on another card with a limit of £7000, which I am paying off. I'm worried that this act will affect my credit score which I have tried so hard to get to "good". Have I made a mistake?

[Deleted User]

Not particularly. You're not close to your combined limits.

It will probably affect the score the CRAs give you, but that's irrelevant.

bengalknights

No it wont have a affect at all as its about debt to limit ratio

lisa110rry

Personally, I would say it was a good thing for a different reason. If your limit is £2000, and someone fraudulently takes a payment (as has happened to me) the potential amount which can be lost is less than if your limit is £15k. For this reason I reduced the limit on both my credit card (almost never used and set to be fully paid off monthly) and also my available overdraft on my current account (absolutely never used).

missgmatthews

Having large amounts of unused credit has a good and bad impact on your credit file. Firstly it shows that you're a good enough client to the banks/credit card companies to justify that kind of credit limit, plus the fact that's it's predominately unused is also great. It shows your living well within your means and are a good credit in that regard. Also so long as you make regular payments above the minimums this will also have a positive impact.

The times it will start to negatively affect you is when your looking to acquire more debt, ie a loan or mortgage. From what you've said you have access to £21k immediately due to the limits on your credit cards. Minimum repayments on that some would be close to £500 a month which is not something everyone could afford. That payment would also only really cover the interest and would not help to clear the actual outstanding balance, at least not for 50 odd years! So this is something any new lender would seriously take into consideration when looking at your credit file. If they lent you money would you be able to still repay them if you used all of that £21k?

In reality unused credit doesn't look bad on a credit file and it is said that using a credit card (within reason) and paying off the full balance each month can help improve a credit rating (but do you really need a £21k limit to prove this?). It only negatively impacts when you start to let the balance build and then only repay the minimums.

If it was me I'd probably reduce the limits to £2k each at the very least, especially if it was unused. If you need the higher limits again in the future I'm sure they'll be more then happy to give them to you.

DM100

This is so helpful and has put my mind at ease. Thank you so much