Are MBNA playing with my credit rating?

GoneDiving

I got an MBNA card to balance transfer to a while ago. The interest free period ends in February.

I have been paying off 2.5-3.5 times the minimum payment. Not used it and never been late with a payment as I have a direct debit for the minimum and then make additional payments in between.

I've just got a text from them to say they've cut my limit and are sending me a letter to explain so I logged in to see that they've cut it in half to just a couple of hundred pounds above my balance. So now instead of utilising 50% of my available credit with them I'm suddenly using 95%. I know in the US your debt utilisation impacts your credit rating but not sure if the same is true in the UK.

I will not be able to clear the balance fully by the time the interest free period ends and had planned to do another balance transfer to a new interest free card. So I'm wondering whether it's simply a case of them reducing their exposure or whether it's a cynical attempt to make it more difficult for me to switch to a new deal. The letter may provide an explanation when it arrives but was wondering if this has happened to others.

MorningcoffeeIV

No. No one is "playing' with your credit rating.

That's just standard conspiracy nonsense.

Jami74

GoneDiving said:

 So now instead of utilising 50% of my available credit with them I'm suddenly using 95%. I know in the US your debt utilisation impacts your credit rating but not sure if the same is true in the UK.

So I'm wondering whether it's simply a case of them reducing their exposure 

It is different here in the UK. There are a few different credit reference agencies that all give you a score, but lenders have their own algorithms and aren't interested in any score that a credit reference agency makes up. The numbers do bounce up and down a bit but in themselves won't affect your ability to get credit. 

Yeah, the bit in bold. They're reducing their exposure. If you're not really using it and just paying it off why would you need a big limit?

When you come to apply for a balance transfer card, use the lenders own eligibility checker before you apply and if you get a couple of rejections then stop applying.

Nasqueron

GoneDiving said:

I got an MBNA card to balance transfer to a while ago. The interest free period ends in February.

I have been paying off 2.5-3.5 times the minimum payment. Not used it and never been late with a payment as I have a direct debit for the minimum and then make additional payments in between.

I've just got a text from them to say they've cut my limit and are sending me a letter to explain so I logged in to see that they've cut it in half to just a couple of hundred pounds above my balance. So now instead of utilising 50% of my available credit with them I'm suddenly using 95%. I know in the US your debt utilisation impacts your credit rating but not sure if the same is true in the UK.

I will not be able to clear the balance fully by the time the interest free period ends and had planned to do another balance transfer to a new interest free card. So I'm wondering whether it's simply a case of them reducing their exposure or whether it's a cynical attempt to make it more difficult for me to switch to a new deal. The letter may provide an explanation when it arrives but was wondering if this has happened to others.

It's a dangerous game financially (interest, credit rating) to not have a plan to pay off a card in time and just hope to get another BT card, always have money ready to clear the card or you will suck up the high APR and have it reported as an interest charging balance on your credit report which would harm your rating

WillPS

Nasqueron said:
 suck up the high APR and have it reported as an interest charging balance on your credit report

This is not how it gets reported. There is a flag that there is a promotional rate which applied to all or part of the balance on the day of report, which can mean a number of things including no interest being charged.

Nasqueron said:

which would harm your rating

Source for this please? There are a few things which lenders (we think!) universally see as bad - defaults, CCJs spring to mind. As for everything else lenders set their own eligibility criteria - only they know which factors do and don't determine how likely you are to be accepted for their credit products. It's a gross oversimplification to suggest that a carried balance is definitively a bad thing - in fact for many lenders this is their only route to profitability since the interchange fee cap.

Nasqueron

WillPS said:

Nasqueron said:
 suck up the high APR and have it reported as an interest charging balance on your credit report

This is not how it gets reported. There is a flag that there is a promotional rate which applied to all or part of the balance on the day of report, which can mean a number of things including no interest being charged.

Nasqueron said:

which would harm your rating

Source for this please? There are a few things which lenders (we think!) universally see as bad - defaults, CCJs spring to mind. As for everything else lenders set their own eligibility criteria - only they know which factors do and don't determine how likely you are to be accepted for their credit products. It's a gross oversimplification to suggest that a carried balance is definitively a bad thing - in fact for many lenders this is their only route to profitability since the interchange fee cap.

When OP promotional rate ends, the card will show a balance each month not being repaid in full and being charged interest

Logically therefore, when you are carrying a balance and paying interest as there is no promo rate flag, it makes you look less attractive to lenders in the era of responsible lending as you clearly cannot afford to pay off your bills. The idea that credit card firms would intentionally "lend" / issue credit to someone who would appear, by the numbers, to be struggling, in the hopes of making profit from them is stretching credibility - an irresponsible lending complaint by the customer could result in them having to repay interest etc to the customer wiping out any such profit.

Also in case you missed it, thanks to Brexit the interchange fee is much higher now Visa and MasterCard are not subject to EU regulation in the UK - the cap of 0.2% (debit) and 0.3% (credit) was bumped up to 1.15% and 1.5% respectively for Card Not Present UK-EEA transactions

WillPS

Nasqueron said:

When OP promotional rate ends, the card will show a balance each month not being repaid in full and being charged interest

The balance gets reported either way. All that changes is that there will no longer be a promotional flag. This isn't at all the same as being able to deduce with any certainty that no interest was being paid previously but a 'full' amount (whatever that is) now applies.

Nasqueron said:

Logically therefore, when you are carrying a balance and paying interest as there is no promo rate flag, it makes you look less attractive to lenders in the era of responsible lending as you clearly cannot afford to pay off your bills. 

Assumptions ahoy. Maybe some lenders take this view, but it's a total misrepresentation that this is 'the view'.

Nasqueron said:
 The idea that credit card firms would intentionally "lend" / issue credit to someone who would appear, by the numbers, to be struggling, in the hopes of making profit from them is stretching credibility - an irresponsible lending complaint by the customer could result in them having to repay interest etc to the customer wiping out any such profit.

This however is provably untrue. If the interest rate was designed never to be charged, ask yourself why do subprime cards have much higher interest rates than the mass-market ones? The answer is that the higher interest rate protects their bottom line as they expect more debt to go bad. 

There's nothing incredible about lenders offering credit products in the hope of charging their customers interest. This is how they make money (mostly).

Nasqueron said:

Also in case you missed it, thanks to Brexit the interchange fee is much higher now Visa and MasterCard are not subject to EU regulation in the UK - the cap of 0.2% (debit) and 0.3% (credit) was bumped up to 1.15% and 1.5% respectively for Card Not Present UK-EEA transactions

Also not true, the rate which applies to domestic cards used for domestic transactions was and remains 0.03% (0.02% for debit). All that's changed is that the rate no longer applies for UK cards used in the EU nor EU cards used in the UK. (This is why there's a bit of a rush to offer 0% FX now, as far higher interchange is possible in most FX situations.)

Here's an official source for that: https://www.psr.org.uk/publications/policy-statements/ps21-1-ifr-revised-2021/

GoneDiving

Thanks for the responses. I'll see what the letter says, not overly worried as according to this site's eligibility tracker I'm 100% Pre Approved for all bar one deal and 95% for that - obviously doesn't guarantee getting the right limit but if not I'm only looking at 4 months interest.

Hoenir

Nasqueron said:

Logically therefore, when you are carrying a balance and paying interest as there is no promo rate flag, it makes you look less attractive to lenders in the era of responsible lending as you clearly cannot afford to pay off your bills. 

That would depend on how the card is being used. Finance houses use the data they can access to assess trends over the full 72 months. Having full visibility over all the applicants credit arrangements provides a macro picture. 

GoneDiving

Interesting. A blog article I read on Premium Credit website (I am unable to post a link as I too noob) indicates that utilisation can impact your score. The blog is entitled Credit Reference Agency Top Tips.

The relevant section states:

"Credit reference agencies look at ‘utilisation’, which is best described as the proportion of available credit that you’re currently using. For example, if you had two credit cards with £10,000 limits, both with a balance of £7,500, your utilisation would be 75%. Though there are several opinions on the matter, 30% utilisation is often seen as a good level for your credit score."

Conspiracy theory or not it would not be the first time a credit card company attempted to lock customers in to secure interest - that's their job after all. I saw some posts in this forum regarding MBNA and the speding interest free period (which I noted in Ts&Cs but I saw on some have been caught out on). I also noted that soon after I took out the card they offered further interest free borrowing. The catch though was that none of your payments would go to the original balance until the new borrowing was settled even though the new borrowing interest free period extended beyond the original period. Sneaky sneaky sneaky!

MorningcoffeeIV

You're mixing up the pretend score with how lenders assess you for risk.

While utilisation is a factor, it's far less on a declining promotional balance.

Your MBNA anecdote is also entirely made up.  Payments will go to the highest rate balance, so the 0% balance couldn't be settled before the interest bearing balance.

But as I say, it's standard conspiracy nonsense.