Transferred balance, should I reduce credit limit?

Bandy2023

Hi, I've just applied and been accepted for a zero per cent (Virgin) balance transfer card, transferring £8000 and leaving my existing (MBNA) card with next to nothing on it.

I'd like to keep that existing MBNA card for day to day purchases, leaving the balance transfer Virgin card with only the zero per cent balance to be dealt with.

My question is, should I reduce the credit limit on the MBNA card? ( current limit £13500 )

flaneurs_lobster

What would you be hoping to achieve by reducing the credit limit on the MBNA card?

Bandy2023

https://forums.moneysavingexpert.com/discussion/comment/81925302#Comment_81925302

I'm assuming available credit affects my credit score.

Don't they assume you might get drunk and go on a splurge??

So reducing it should improve that?

flaneurs_lobster

See an earlier discussion here

https://forums.moneysavingexpert.com/discussion/6659813/reducing-credit-limits

No-one but you sees your credit score so why try to "improve" it? Whether reducing your credit limit will improve your credit-worthiness with potential lenders is debatable.

DuncanHart

https://forums.moneysavingexpert.com/discussion/comment/81925335#Comment_81925335

I think the earlier discussion poses different risk factors - I was asking in circumstances where I had no debt and no chance of ever carrying a balance - with £8,000 of debt the risk of running up another £8,000 would to my mind entirely outweighs the benefits (if any) of leaving open the line of credit. Isn’t the best thing to do to get rid of the MBNA card altogether?

flaneurs_lobster

Does rather depend on the nature of that £8k debt, and if the OP has concerns about adding to it.

I've got a similar amount (also on a Virgin card) of interest free, moved from a cashback CC after paying a one-off bill. The VM card is being used just as a stoozing vehicle - I could, if I needed to, pay that card off tomorrow but at the moment the cash is earning 6% in EA accounts.

DuncanHart

https://forums.moneysavingexpert.com/discussion/comment/81930323#Comment_81930323

fair point I hadn’t considered that the debt may not be a negative ledger owing to having the cash on investment somewhere - but even at 6% gross that’s 3% after tax. At 18% say interest on the credit card you’d only need to make a small mistake and you’ve wiped out your gains plus sum. Maybe I’m too conservative for that approach!

thor

https://forums.moneysavingexpert.com/discussion/comment/81931013#Comment_81931013

6% gross to 3% net is 50% savings tax rate. This can't be true? Also is this 6% easy account a regular saver?

flaneurs_lobster

https://forums.moneysavingexpert.com/discussion/comment/81932356#Comment_81932356

6% on £4k is available in a Santander Edge easy access savings account.

I have 2.

Imagine that 6 to 3% is just an approximation of the effect of 40% tax on interest earned.

DuncanHart

Well, you’re taxed at your marginal rate which is 45% for me, which makes me risk averse unless he gain is really worth it.

flaneurs_lobster

https://forums.moneysavingexpert.com/discussion/comment/81945948#Comment_81945948

How to you quantify if a gain is worth it to you? Percentage rate or an absolute amount?

That example above with £8k being stoozed at 6% will earn £480 over a year (before tax). I think that's a worthwhile return for the effort required to set up and maintain.

Is this "risk" (that you've referred to twice) the risk of misapplying or forgetting to make minimum payments to a balance transfer card thus making the entire balance interest bearing?

Then yes, if you do not have confidence in your own procedures or abilities to make regular payments, or you do not trust the CC company to administer a monthly DD instruction then these products would not be suitable for you.