Discussion: Should I Decrease My Credit Limits?

Yes, this has been discussed before.

Yes, there is a link in the sticky CC FAQs.

However, that thread is so old it is archived and cannot be added to either in reply or as an update to the Quick Summary, which doesn't even exist for that thread.

Therefore, in an effort to keep the FAQs up to date, I am reopening this topic for an updated and fresh discussion.


To kick it off, I present this article for comments: How That Large Credit Limit Can Hurt You

I found the article useful as it served as insight to some wonderings I have had in the past regarding my own credit history. For example, I wondered just why some cards continually increased my CL periodically without my request--at times very generously--while others haven't changed since the day they were first opened years ago. I also wondered why it was that one bank would issue me a card with a 20k CL while another only 2k. Is it "me"? Is it "them"? etc.

Incidentally, the article also discusses the impact these CC company practices have had on consumers. Namely, giving more credit to an individual than an individual can responsibly handle. While most FWF members do not fit this bill, we have had numerous questions from members who do (and these are the same members who could benefit most from up-to-date FAQs). Consider the data from the article:

Between 1993 and 2000, the credit card industry tripled the amount of credit it offered to customers, from $777 billion to almost $3 trillion.

The average card-holding household now has six credit cards with an average credit line of $3,500 on each, for a total of $21,000 in available credit.

This massive marketing and extension of credit lines has led to a big jump in consumer credit card debt. Whether out of temptation or financial necessity, many Americans have run up big balances on their supersized credit lines.

At any rate, I get the sense that there is still some confusion out there among FWF members over what is the "happy balance" with number of cards (as seen in this recent related discussionand amount of CLs and I think that many of us might benefit from an updated discussion of this topic.

Many of us, for example, especially those of us who participate in app-o-rama's to play the 0% BT game, probably find the advice provided in the article anathema to our aims. But I would also readily concede that we are in the minority of consumers. There is a lot of information that your "typical" consumer using credit cards could benefit from.

What I am most interested in discussing, however, is points in the article that knowledgeable FWF members agree or disagree with, and why, and in either case, how does your own personal experiences tend to support or contradict the information provided in the article.

NO.

I gave you green, but I think this article is only good for people who know close to nothing about their credit and use of it. For most people around here CL increase is not an invitation to spend more money and carry a larger balance but rathe an opportunity to do a larger BT and make more money on it, a chance to get mor lucrative 0% offers etc. Personally, I don't see any good reason not to accept a CL increase unless you got a BIG spending problem, but then you probably not reading this right now anyways, you're spending your time and money at the mall

DONT decrease credit limits unless you are irresponsible with your CCs

read some of the benefits at the large credit lines thread

BigBucksNoWhammy said: What I am most interested in discussing, however, is points in the article that knowledgeable FWF members agree or disagree with, and why, and in either case, how does your own personal experiences tend to support or contradict the information provided in the article.Hmm...not sure what would you like to discuss specifically, other than the title of the OP?

CrazyRus has the simple, correct answer to that question. Never, ever, ever, ever cut your own limits, unless they compromise your discipline.

I worked in CC company. Most offers we send out have a critia "No credit limit decrease in 12 month"

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BigBucksNoWhammy said:
Many of you are misinterpreting my purpose here. I'm not asking the question, I already know the answer. I'm simply attempting to stir debate over some issues mentioned in the article referred to. No one is forcing you to participate. If it doesn't interest you, move on, right?

I'm sure there are plenty of folks who DON'T KNOW this stuff and who haven't seen the FAQs. We can mention how many members have fled this forum for all the so-called reposts, but I'd wager the number is small compared to the number who flee due to the oppressive atmosphere of what can or cannot be brought up as a topic for discussion.

"stirring up new debate" on questions already addressed (and where the answers havent changed) doesnt really make sense. Probably better to renew a discussion of a financial DEAL, in hopes someone will have a new better source to post, instead of reviving a financial QUESTION thats been asked and answered before.

OR ask FW to drop the "archiving" after 90 days in this forum so we can continue existing threads!

Chunhuatang said: I worked in CC company. Most offers we send out have a critia "No credit limit decrease in 12 month"

Interesting--so if I reallocate my CL between two cards (thus decreasing the line on one of them) to take full advantage of a 0% BT I am missing out on the offers from your bank?

Only a fool would decrease ones credit limit. The only case in which it would be appropriate is if you are refinancing and in order to get the lowest rock bottom rate, you need to reduce CL exposure. Even then, there are other lenders who would work within your total revolving credit limits. Generally speaking, reducing ones CL's is considered negative and may have unintended consequences from other lenders when such action is taken. If you must, proceed with caution and watch for adverse action from current creditors when they notice your credit limits have dropped, voluntary or involuntary.

If you're disciplined enough to know your own limits, then no.

johto said: my available credit on revolving accounts is approaching 150% of my yearly income. now surely that can't/won't look good when i apply for a mortgage at some point, right?

Don't worry about it.

My available credit is a good 5x my annual income, and no one has ever asked me to do this. (I have several investment properties, so I'm obtaining mortgages all the time.) Several other FW members have experience similar to mine.

It's possible that a particular mortgager might object at some point--but the odds of this being the best offer you get are small, and you can always close the lines if they say (I'd then re-open them right after the mortgage closed if it were me.)

I was looking for some other info and ran across this quote from an executive at Fair Isaac:

"And, Ulzheimer chimes in, those unused cards lying in your jewelry box aren't wreaking havoc with your score.

"The myth is that they look ominous to potential lenders," he explains. "Reality is that paying your bills on time and not being overextended is more important than having $5,000 worth of available credit on a card you're not using. We continue to evaluate this 'open to buy' statistic, and we simply don't find it falling into one of those highly predictive areas."

Although the exact calculation is a mystery, FICO is based upon predictive accuracy. The algorithm rewards behavior associated with low risk. Up to now (at least) high "open to buy" is not associated with increased risk. As a matter of fact, my observation has been that higher limits (as long as ratios remain low and bills are paid promptly) will increase one's FICO.

LaJollaInvestor said: As a matter of fact, my observation has been that higher limits (as long as ratios remain low and bills are paid promptly) will increase one's FICO.

What exactly does he mean by "as long as ratios remain low"? What kind of ratios is he talking about?

Chunhuatang said:

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I worked in CC company. Most offers we send out have a critia "No credit limit decrease in 12 month"

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EugeneV said: Offers to existing customers? I don't think you could use credit report for marketing purposes/risk assessment. How could you tell the difference between credit limit decrease and credit reallocation?

Well, one easy (and bad) solution would be to not distinguish -- many non FW's have never even considered credit reallocation, let alone multiple cards from one issuer or other such esoterica
Though, on the other hand, people who play the 0 BT game/reallocate may also be non profitable to banks...safe, but unprofitable
Also, it could be done for new customers -- experian records historic CL's, for instance...

why do i get the feeling marketing mike has experience with this?