Disability & Unsecured Borrowing

Altior

I've been ticking along, paying monthly, no missed payments. Currently well under control.

Something really odd happened this week. I got a random letter from the oldest account I had, a rather large credit limit, but had a nil balance. This account has often had extended nil balances. Out of the blue, they told me that they were closing the account, and in the meantime, my credit limit was reduced to a meaningless, token amount.

The letter was just generic, along the lines of they use lots of information sources, and have decided the account is no longer appropriate and as I've not used it for a while. As I say, nothing has changed and the credit reports remain clean.

I'd rather not have had the forced account closure, but it's no great loss. What I am concerned with is the possibility of a snowball effect on other accounts.

Does anyone have experience of something similar? If so, how did it play out?

kaMelo

You don't say who the card is with but there are plenty of posts on the credit card board of lenders reducing credit limits or closing accounts. The main one I can think of was a couple of years ago when Barclays got slapped with a multi-million pound fine from the FCA for widespread unaffordable lending, as a result Barclays reduced many Barclaycard holders credit limits to a token amount. I didn't have my own limit reduced but I did receive a request for updated financial details which must have been good enough as they left my limit as it was.

I just think more lenders are worried about falling foul of unaffordable lending claims and adjusting credit limits accordingly, and if the card holder doesn't supply the lender with updated income/expenditure details, reducing credit limits to a token amount or closing the account entirely.

I don't think there would be a snowball effect with one credit cared being closed as accounts can be closed for a multitude of reasons either by the lender or card holder, none of which will show on in any CRA data. Lenders will make a decision based upon the date they hold themselves.

Altior

https://forums.moneysavingexpert.com/discussion/comment/82065224#Comment_82065224

Thanks, it is mbna, so linked to other accounts I have within the same banking family.

The limit was £10K-£20K.

As a legacy stoozer, I have had plenty of redundant cc accounts closed, but this was unusual. Literally cut the limit to meaningfully nothing overnight, on the same day as the letter was sent electronically. The other cards that closed gave me an opportunity to use the card to keep the account running, and didn't limit the credit.

I decided to manually fully close the account, rather than keeping a useless one running for 60 days!

Another irony is that I have paid off a few accounts this month where deals have ended, so my total liability will have significantly reduced, but this info will not have filtered through to reported balances to the cras as yet.

kaMelo

MBNA is not one I've seen doing this before. It is strange that they've not given you the option to restore the account to a more meaningful credit limit by asking for up to date financial details. Maybe they are just reducing their exposure on dormant accounts or fending off unaffordable lending complaints. That of course is just my speculation based upon nothing of significance.

If it's no loss and you've closed the account anyway then just let it go. I don't believe it will have any affect on other lenders as all they will see eventually is the account was closed but they will have no idea as to why.

Altior

https://forums.moneysavingexpert.com/discussion/comment/82065561#Comment_82065561

Thanks again.

I have quite a tough decision to make soon.

After my OP, I decided that I would aim to carry on paying down unsecured debt using 0% deals, and apply for UC once my capital naturally fell below the upper UC capital limit. But this plan is contingent on continuing to being offered 0% deals on existing accounts, as I have enjoyed for many years.

I do have some reasonably significant cash assets maturing soon. What I don't want to do is use that cash to pay down some of these outstanding balances, and end up having to DMP and trashing my credit report anyway. I may as well enter the DMP and qualify for UC if that's the case, and use the capital to reduce my mortgage liability instead. The unknown element is whether the 0% deals have dried up forever, so this manoeuvre from MBNA has given me the heebie jeebies! Plan A is contingent on refreshed 0% deals until I can access pension capital.

I don't fib in financial applications, so there are one or two accounts this year that I have applied for recently to seek bonuses/cashback and make the cash that I do have best work for me. These are not borrowing or banks, but investment platforms/insurance. But as part of the application, they do ask for generic income and savings detail, employment status et al. I didn't think this would be shared outside the application as it doesn't use cras or my credit reports, but perhaps that was an error of mine and that info is actually available to lenders. I don't feel it is likely as my albeit practically meaningless credit scores remain strong and I am still being offered credit cards and loans.

ManyWays

Ok so this move by MBNA has meant you are now using a much higher amount of the total credit limit. Can you give the numbers?

Has your capital now dropped below the UC limit?

Altior

Broadly I'm looking at £20K assets, £30K unsecured, but £4K of the cash assets are locked until 2028.

On top of ESA income and interest I do have expected income via cashback and there should be an income tax refund this year, expecting circa £3K all in.

I'm also a decent gambler, and have income ticking along sporadically. Obviously low risk in my circs, and depends upon when opportunities arise so I don't place any sort of reliance on it. Perhaps averages out at £100 pcm.

To get CT support, I must have sub £6K capital in my council. Running the numbers, if I apply for UC and qualify for SMI, that gives me headroom, with CT support I could reasonably afford to service £20K unsecured at 1% pcm, but only on 0% deals. And service a DMP if it comes to that. But there is that dead weight of capital that isn't capital I can access, in reality sub £6K is currently sub £2K until 2028. And my mortgage interest rate is likely to take a big hike late 2028.

One thing is a clutch point, by coincidence I have a lot of deals terminating at around the turn of the year/early spring 2027. More than I could pay off with free funds. My inclination was to take the educated gamble that settling a lot of the liabilities would see new 0% transfer offers coming through. Until this MBNA action! Now it feels like there's a possibility that I could use a lot of capital and end up in a DMP anyway. A DMP in of itself is not an issue, but I'd much prefer to maintain my clean record and do it the 'right' way, so to speak.

ManyWays

To get CT support, I must have sub £6K capital
Actually sub 16k. between 6k and 16k there is a taper, reducing the UC you get.

I have a lot of deals terminating at around the turn of the year/early spring 2027. More than I could pay off with free funds
You said you have 20k of asest, 4k locked until 2028? how large are these deals that are endinf end year/ spring 2027?

You could paying off 10k of deals in December. That will leave you in a better position to refinance the ones ending in the Spring.

But I see no reason to delay getting onto UC.

The sooner you get onto UC the better, at the moment you are just losing income. The SMI part is not (I think) means tested at all, you just have to have received UC for three months.

So I suggest clearing the early ending 0% deals now

Altior

Those are the specific rules of my council, nobody of working age with capacity gets support above £6K capital. It's not directly correlated to UC, ie you can get CT support without being on UC, but they will use the capital reported by UC to make the decision if you are on it. And you can apply during the UC application without applying directly via the council.

The deals are more or less as noted on the SoA on page 1.

What I'm contemplating is that I could begin working toward the DMP now. As you know, defaults won't come through for up to six months.

I would have too much capital for UC at that point, but in a few months I can overpay the mortgage fee free, then apply for UC, and get SMI after the waiting time.

The counter argument is that reducing the mortgage capital doesn't make much tangible difference in the short term, and obviously the unsecured debt will increase with fees and interest before the defaults.

Regarding the UC income, it is 'only' maximum £200 pcm due to the ESA offset. I will get close to that with yield on my capital (if I don't settle the cards). The appealing part of UC is SMI, and CT support if I reduce my capital below £6K.

A consideration is that if I give accurate figures, my income would be less than my outgoings on ESA only, whereas on UC I would have excess income, due to SMI. In my planning I have to consider what would be viable as an amount to monthly service a DMP.

ManyWays

Council Tax Support matters less here than getting UC, as it's UC that is the gateway to getting SMI.

My point I think still stands, why not use capital to get your debts under 16k now , which will let you get some UC and SMI. And improve your chance of being able to refinance the other 0% deals when they expire next year.

I don't see that you actually need a DMP if you can clear a lot of the debt now, more assets become available later and you are getting more income (UC and SMI ) now? CTS can come along later.