Reducing credit card limits

FidelCashflow · Jan 1, 2009

I decided to slash the credit limit on one of my cards from $10K to $1K today because I've been using it more than I should have lately on a few impulse purchases. Does anyone know for sure what impact slashing your limits has on your credit score?

Some websites says it hurts it, others say it helps. I find it hard to trust any of these tv financial experts since many of them are paid by the companies to promote their message.

cchen · Jan 1, 2009

it hurts. less available credit = more % of available credit utilized

FidelCashflow · Jan 1, 2009

I read that, but I read elsewhere that if you have too much available credit, it counts against you if you need a mortgage since you're a higher-risk since you could run up a big bill by maxing out all your cards.

thekunk07 · Jan 1, 2009

i asked amex to cut me off at 3k every month so i don't go overboard. they will remove the hold upon request.

lee_44106 · Jan 1, 2009

Overall, the move probably hurt you.

Your FICO score takes into heavy consideration the credit limit/debt ratio, your timeliness of payment or deliquencies.

thekunk07 · Jan 1, 2009

the credit scoring system is severly flawed IMO.

lee_44106 · Jan 1, 2009

Originally Posted by thekunk07

the credit scoring system is severly flawed IMO.

Yes it is, but given the situation, it's the best way to gauge a person's credit-worthiness.

I applaud the OP for the intention to limit unnecessary spending.

Remember to use credit card to your advantage as an interest free loan FOR YOU, and not as a money making machine for the cc companies.

indy116 · Jan 1, 2009

One of my CC's has raised and raised my limit over the years (have had it since my first year of college) so that it is more than I make in a year. It's absurd. It's always paid off and I would just charge something every few months to keep it active.

I've thought about asking them to drop it, but the credit hit thing has worried me as I'm preparing to buy a house. My credit was ran when I did a pre-approval for a mortgage a few months ago and the FICO was superb, so I'm leaving it alone.

FidelCashflow · Jan 2, 2009

Originally Posted by lee_44106

Your FICO score takes into heavy consideration the credit limit/debt ratio
I just did a before/after calculation, and slashing my limit only changed this ratio by like 5%. Like everyone else, I have cards with huge limits that I've hardly ever used which form a nice cushion. But I don't carry those in my wallet, so I'm not concerned about impulsive spending on them.

Originally Posted by lee_44106

Remember to use credit card to your advantage as an interest free loan FOR YOU, and not as a money making machine for the cc companies.
Good advice. I feel good about my decision to slash my limit. I realized my impulse buys have been getting bigger over the last few years which scared me a little. With a tight credit limit like this, I figure it will force me to think twice because I would have to go home and get one of my other credit cards. I find walking out of a store usually relieves the "sales psychosis" pretty effectively.

randallr · Jan 2, 2009

I need to get a credit card. Which one should I get?

tiecollector · Jan 2, 2009

Last month I shredded all my cards and you'd be surprised how little you spend. No impulse purchases at all. It can get frustrating though. I have a few credit cards with high limits. I am going to pay them all off next month and then have my Amex limited down to $125.

oceans11 · Jan 2, 2009

Originally Posted by thekunk07

the credit scoring system is severly flawed IMO.

I read in WSJ that it's being revamped. I believe their calling it FICO 8 (was suppose to roll out in 2008 but it didn't) or something to that affect.

There were several different key points that were being addressed such as no score hit for collections/chrg offs under $100 bucks, gives more credit to those who maintain "multiple lines of credit" & authorized user accounts have flipped flopped back & forth on whether to give score credit or to not due to all the rampant credit "repair" companies loading a persons credit with tons of auth user accounts getting the score to boost higher.

oceans11 · Jan 2, 2009

Amex is the best card to have & IMO still has a good credit methodology & still makes it at least somewhat of a challenge to get into their Gold & Platinum card ranges with higher than normal yearly due's.

Every other bank card issuer basically just hands out cards with $5K -$10K+ spending limits & the "Gold" standard, let alone Platinum, doesn't even mean anything anymore the way it used to.

Originally Posted by tiecollector

Last month I shredded all my cards and you'd be surprised how little you spend. No impulse purchases at all. It can get frustrating though. I have a few credit cards with high limits. I am going to pay them all off next month and then have my Amex limited down to $125.

Berticus · Jan 2, 2009

I've never heard of cutting down your credit limit helping your score... Well, unless you brought the total limit down by cancelling a bunch of cards.

In any event, I don't understand why people use limits to control their spending. Before I buy something I look at how much money I have, not how close I am to the limit of the credit card. I believe if you really want to control how you spend your money, you should really sit down, look at your cash flow or income statement, and figure out how to slash your spendings based on that. Then instead of looking at how much money you have left to buy things, you would look at how much is left in your budget.

Lucky7 · Jan 2, 2009

Originally Posted by randallr

I need to get a credit card. Which one should I get?

Hey threadjacker..just kidding. Depends what you want out of it. Go on mastercard.com and check them out. I started out with an AMEX in college, I now have (1) AMEX, (1) Visa, (1) MC, (1) Discover and (1) Debit. I generally put everything on AMEX, however, some establishments do not take AMEX.

Reducing credit card limits

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