The logic behind "reducing credit limit because of high utilisation"

Alex9384

Just received a letter today from Barclaycard dated 26 May, saying that on 30 May they're reducing my credit limit from 8200 to 7250 "to reduce risk" blah blah. I took advantage of their money transfer offer and transferred 90% of the available credit limit. Some people on this forum said they used to make money transfer (MT) and also keep spending on that card, then only pay back the purchase balance, so the MT balance stayed the same from month to month. Basically a stoozing, since I have that money elsewhere.

I asked their CS representative about it. I make regular monthly payments way before due date (always after statement), I have perfect credit history and I'm not in financial distress. They said it's because I have a high Risk score, e.g. high credit utilisation, and some other reasons such as late payments, etc., which are not the case here. It's obviously the utilisation that has scared them so much.
They said the review period is 4 months, so after 4 months I may be able to "get some great offers again".

Now my question is, if high utilisation is the problem, what do they expect to happen after reducing the card limit just above the balance owed (currently 6900 on 0% promotional rate till 2023). The answer is, it will take the utilisation from 84% to 95%. Isn't that going to scare them even more?? So, after 4 months and another review, they'll find out the utilisation will be 75-80% so they might decide to cut the limit again, taking it above 90% again! And they can keep repeating this, causing the utilisation stay very high all the time. No matter that I've been paying off the balance regularly, it's them who cause the utilisation to go up and then reduce limit because the utilisation is high. What's the logic behind that? Yes, reducing the risk, I get it, but if they don't like high utilisation, why they take steps that make utilisation even higher?

[Deleted User]

Barclaycard haven't had a consistent lending risk strategy for the last decade. They'll probably double your limit next month.

mjm3346

Alex9384 said:

 Yes, reducing the risk, I get it, but if they don't like high utilisation, why they take steps that make utilisation even higher?

 The potential amount they have at risk is lower even if utilisation is higher and if they keep cutting the limit the possible loss will keep getting smaller.

Alex9384

mjm3346 said:

  The potential amount they have at risk is lower even if utilisation is higher and if they keep cutting the limit the possible loss will keep getting smaller.

If they worry so much, why not to freeze the card for new spending and just allow to make repayments?
That would be a better option for me as it wouldn't be visible on my credit reports. Credit limit reductions don't look very good to other lenders.

Alex9384

mjm3346 said:

  The potential amount they have at risk is lower even if utilisation is higher and if they keep cutting the limit the possible loss will keep getting smaller.

The thing is that the perceived risk is caused by the high utilisation. Therefore, their actions will make the risk higher (in their own eyes). There's no other issue than the high utilisation. They're just going to scare themselves (or their algorithm) even more.

mjm3346

Alex9384 said:

mjm3346 said:

  The potential amount they have at risk is lower even if utilisation is higher and if they keep cutting the limit the possible loss will keep getting smaller.

The thing is that the perceived risk is caused by the high utilisation. Therefore, their actions will make the risk higher (in their own eyes). There's no other issue than the high utilisation. They're just going to scare themselves (or their algorithm) even more.

I didn't say it was sensible and if you generally get squeezed because of your becoming "poor" credit rating then the "risk" from high utilisation can become a self-fulfilling prophecy

Alex9384

mjm3346 said:

I didn't say it was sensible and if you generally get squeezed because of your becoming "poor" credit rating then the "risk" from high utilisation can become a self-fulfilling prophecy

I don't get squeezed. Having a great credit history has various benefits, so I don't want to have it tainted by anything.

Alex9384

Deleted_User said:

Barclaycard haven't had a consistent lending risk strategy for the last decade. They'll probably double your limit next month.

Maybe. Not so long ago they were slashing limits of those who didn't spend enough on their cards.

martinbainbridge1975

Alex9384 said:

Deleted_User said:

Barclaycard haven't had a consistent lending risk strategy for the last decade. They'll probably double your limit next month.

Maybe. Not so long ago they were slashing limits of those who didn't spend enough on their cards.

In the past companies have also closed cards down for not using them enough

Sandtree

Alex9384 said:

Now my question is, if high utilisation is the problem, what do they expect to happen after reducing the card limit just above the balance owed (currently 6900 on 0% promotional rate till 2023). The answer is, it will take the utilisation from 84% to 95%. Isn't that going to scare them even more?? So, after 4 months and another review, they'll find out the utilisation will be 75-80% so they might decide to cut the limit again, taking it above 90% again! And they can keep repeating this, causing the utilisation stay very high all the time. No matter that I've been paying off the balance regularly, it's them who cause the utilisation to go up and then reduce limit because the utilisation is high. What's the logic behind that? Yes, reducing the risk, I get it, but if they don't like high utilisation, why they take steps that make utilisation even higher?

This is what Tesco did to me.

Banks have an increasing responsibility to be a responsible lender. Being near your credit limit across all your cards can show you are in a spiralling debt situation and therefore some will start cutting your limits to not be the ones responsible for funding your above your means spending. It does however create a vicious circle unless you have the funds to materially pay down your debts. 

Obviously if you are just using it for a promotional rate then its not much of an issue as you are likely to dump the card when you pay it off before the end of the rate. If you aren't going to be able to pay it off in time then maybe they are right to be concerned. 

[Deleted User]

I have a barclaycard BT (platinum) card, I use it regularly as they do long offers, they keep upping my limit and I keep taking advantage.