QUESTION: Should I reduce my credit limit?

[Baggravation]

That's peachy. I try to do that as well. Credit utilization is only one piece of the pie. Bill payment history, types of credit, length of credit history, number of recent inquiries (for credit application), debt history, and total outstanding debt all factor into your credit score as well.

It's all a bit odd. When DH and I were checked for our credit histories, his rating was higher than mine because he had more different types of credit loans (line of credit for business, car loan, vs. my student loan), more bills in his name (he lived on his own with all bills in his name, I lived with family with one bill in my name), more times he's carried a balance on his credit card but made the minimum payment (I've never carried a balance).... Both of us have "excellent credit" but his score looks better. A credit score is thought of as a measure of a person's ability to repay debt, but it really seems to be a measure of a person's affinity to borrow money (or in other words, a measure of the possibility of making the lender richer!). People I know who have no debt and never borrow money have much lower credit scores. Go figure!

That's very interesting! Good to know these things Thanks for sharing!

[blueeyetea]

Someone on here told me that you should never fully max out your credit card every month. I think they said not to use more than 30% of your total credit every single month and you should have a certain amount of consistency. .................. I have a $500 limit and I've only been spending around 20-30% of that every month thus far. What does this mean in terms of loan/mortgage in the future?

This has to do with getting a good credit score. Credit companies will base your credit score on how much of your limit you're using. According to them, you shouldn't be using more than 50% of your credit limit, whether you pay the balance in full or not at the end of the month. The argument is that if you use more than 50% of your credit limit, you should increase your credit limit so that you don't go over the 50%. For example, if your credit limit is $1000, and often spend around $750, then you should increase your credit limit to $1,500 so as not to damage your credit score.

That's the explanation you'll get from the financial industry. What they don't tell you is that it's self-serving for the financial industry and a double-edged sword for you. By increasing your credit limit, you're becoming a higher risk (because you'll like use it in times of trouble) and they'll use that as an excuse to charge you a higher interest rate for a loan or mortage.

Refer to this post where we discuss it a bit more and where's a link to Gail Vaz-Oxlade's podcast where she talks about it.

[blueeyetea]

It's all a bit odd. When DH and I were checked for our credit histories, his rating was higher than mine because he had more different types of credit loans (line of credit for business, car loan, vs. my student loan), more bills in his name (he lived on his own with all bills in his name, I lived with family with one bill in my name), more times he's carried a balance on his credit card but made the minimum payment (I've never carried a balance).... !

Not so odd when we realize that the credit score is a measure of how profitable your husband is from a financial institution's point of view.

[sweet sparrow]

Not so odd when we realize that the credit score is a measure of how profitable your husband is from a financial institution's point of view.

I mean odd from a rational point of view rather than a business point of view, but yes. I think it's annoying that it's perceived as "my" credit score when it's what the financial companies think of you. Even more annoying when this score is being increasingly looked at to determine insurance rates. If my finances are in good shape and my credit score is low, that shouldn't have to mean that I pay more!

Our credit scores differ by a negligible amount, but I imagine some people might be tempted to put the person with the higher score on everything, which does not help the person with the lower score. It's an odd system.

[Pat Drummond]

Credit ratings and scores are calculated on so many variables. I have seen reports where person has maxed out 2 or 3 cards yet still have a pretty polished record and high credit score. What matters most is to avoid the kind of blemishes that last a long time on your credit reports. i.e. late payments, collections, bankruptcy. I wouldn't worry about much about reducing your credit limit. In fact, it's probably better.

[Brooke_]

It actually hurts you to have large amounts of unused credit available to you. Wether $1500 is considered a large amount I am not sure. But I think it is a smart idea! I actually just reduced mine the other day from $4000 to $2000 for the same reason. I think when he said "reapply" he means you'd have to call back in and they'd check it for you and say yes or no. It takes a few minutes but not a big deal.

[Baggravation]

It actually hurts you to have large amounts of unused credit available to you. Wether $1500 is considered a large amount I am not sure. But I think it is a smart idea! I actually just reduced mine the other day from $4000 to $2000 for the same reason. I think when he said "reapply" he means you'd have to call back in and they'd check it for you and say yes or no. It takes a few minutes but not a big deal.

His tone of voice implied that it would be difficult to increase my credit limit once I reduced it but from all the advice given to me through this thread, I think you're right; it seems like I would just call in and they would either improve me or not. I don't see why they wouldn't increase my limit if I've been paying my bills every month I guess it's a good thing I reduced my credit limit because I don't tend to use my credit card all that much. Thank you!

[FallenPixels]

Pffft I reduce mine every time they increase it without even asking me and they still increase it again within months
$1500 is very reasonable if you are careful with it though, too low and it is easy to max it on a 'normal' month, even if you pay it off all the time, maxxing it can impact.
Our accountant tells us to try and keep it under 66% limit
If you want a mortgage etc, it pays to show good usage of credit, so don't just keep it for emergencies, use it responsibly

[bargain_hunter_lola]

Interesting thread.

Our limit is massive and they keep trying to increase it. DH and I are actually thinking of lowering it, but wasn't sure of the impact.

We were thinking of dropping our limit to $5000. That's more than we really would ever need or should have on a credit card. We want to ensure our credit stays good but banks seriously make things more confusing than things need to be.

[Baggravation]

Pffft I reduce mine every time they increase it without even asking me and they still increase it again within months
$1500 is very reasonable if you are careful with it though, too low and it is easy to max it on a 'normal' month, even if you pay it off all the time, maxxing it can impact.
Our accountant tells us to try and keep it under 66% limit
If you want a mortgage etc, it pays to show good usage of credit, so don't just keep it for emergencies, use it responsibly

A mortgage is something I'm thinking about down the line but I'm so gosh darn scared to use my credit card much ahah You know the stories you hear of getting addicting to using your card and not paying it off. You think it's never going to be you but you never know.

For now I just have my cellphone bill on it which is only around 6% of my max limit :/ The thing is that with my debit, I know how much money I have and how much is leaving my account. With credit, I get my bill at the end of the month and I sometimes lose track of how much I've spent (not that I spend a lot on it - as I mentioned before, I'm super scared LOL).

I don't have a whole lot of bills to pay at the moment because I'm pretty young but I suppose I will in the next few years and then I would pay those by credit. I think that's what the people on here have been saying to do. Is that a good idea?

[Baggravation]

Interesting thread.

Our limit is massive and they keep trying to increase it. DH and I are actually thinking of lowering it, but wasn't sure of the impact.

We were thinking of dropping our limit to $5000. That's more than we really would ever need or should have on a credit card. We want to ensure our credit stays good but banks seriously make things more confusing than things need to be.

I think your situation may be different than mine. I just got my first credit card but since you have such a large limit, I'm assuming you'd had one for a very long time. I dropped my credit limit for 2 reasons. Number 1 was because I just thought $1000 was waaay too much for me and I never wanted to feel like I could spend that money in a month on credit and number 2 was because I just didn't feel all that comfortable with have that limit and then having my card stolen (although the guy at the bank told me that apparently there is some sort of security and they would waive the fees if it were even stolen - don't know how much truth there is to that).

[FallenPixels]

I have had my card compromised, the bank called me before I even knew, asking me where I was and if I had made a purchase at x store. I said no, they cancelled my card, put the money back on it. I was out a week or so without it but no big deal

[Baggravation]

I have had my card compromised, the bank called me before I even knew, asking me where I was and if I had made a purchase at x store. I said no, they cancelled my card, put the money back on it. I was out a week or so without it but no big deal

So they told me the truth LOL! Thanks!

[Retiree]

My BMO Mastercard was compromised just before I went on vacation at the end of February. I check my MC daily and found the charges so phoned BMO. They cancelled my right away and by the time I came home 2 weeks later, my new card was in my mail and the charges had been reversed on my old card.

[Baggravation]

My BMO Mastercard was compromised just before I went on vacation at the end of February. I check my MC daily and found the charges so phoned BMO. They cancelled my right away and by the time I came home 2 weeks later, my new card was in my mail and the charges had been reversed on my old card.

Thank you! That's reassuring to know :D