QUESTION: Should I reduce my credit limit?

[Baggravation]

I just asked my bank to reduce my credit limit from $1500 to $500. This is my very first credit card and it scares me that I would be able to spend $1500 a month (not that I was planning on spending even remotely close to that). Did I just make a big mistake? Will this affect my credit score? The guy who made the change seemed rather confused as to why I would want to reduce my credit. He told me that if I ever wanted to go back up to $1500 I would now have to apply for it again. I said that's fine and that I'd like to go down to $500. Now I think I made a mistake. I don't understand credit all that much. Could someone PLEASE provide some insight. Thank you.

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[GoStumpy]

There are pros and cons to every decision we make... lets look at the pros and cons of it!

Pros:
Forced maximum spending
Reduced stress associated with decisions to USE the credit card (19.9% @ $500 is ~$10/mo interest)

Cons:
Slightly lowered credit score
Required to apply to have it raised in the future if you wish to


Do you have any to add?

So far you feeling comfortable with your credit limit is the most important one I can see, so I think for YOU, you made the right decision. Everyone is different!

[blueeyetea]

Baggravation, I don't believe that you'd have to reapply. If you were good at paying your bills with the $1500 limit, it will probably stay on your file, while officially, your credit card statement will show $500. Most banks will up your limit automatically if, by chance, your balance is always close to your limit. For me personally, I've had to ask my bank in writing twice not to increase my limit without my express permission, because they kept raising it higher. When I get those routine calls a couple time a year, they keep mentionning that I'm already approved for a higher limit and ask if I want it raised.

Banks make too much money from credit cards, and will raise a limit at the drop of a hat, so it's really up to the consumer to create their own limits.

[MortgageMaster]

If you are happy with this that is great. However if you wish to apply for a loan or a mortgage in the future the lower limit could have a slight negative affect due to credit utilization. Part of your credit score is determined by this factor. As an example if you have a $250 balance on the $500 limit you have used up 50% of your amount available. With a $1500 you would have used up only 16.7%. It is always recommended to keep your balances under 30% of your total credit amount available for credit score purposes. Just a thought.

[kasha100]

does having a limit on your card stop you putting more on, have never done it but not sure that you get "cut off" at the store or anything if you do go over... someone may know....
they used to randomly put it up without your permission now you have to ok it

[gourmetsue]

Most banks will up your limit automatically if, by chance, your balance is always close to your limit. For me personally, I've had to ask my bank in writing twice not to increase my limit without my express permission, because they kept raising it higher. When I get those routine calls a couple time a year, they keep mentionning that I'm already approved for a higher limit and ask if I want it raised.

If I'm not mistaken, they are no longer allowed to automatically increase your credit limit without notifying you and you approving it. I believe this came about in the last couple of years.

ETA: As of January 1, 2010
"Consent for credit limit increases on credit cardsFederally regulated financial institutions have to get your consent before they can increase your credit card limit. If you give verbal consent, the institution must provide confirmation in writing no later than your next statement."

source: http://www.fcac-acfc.gc.ca/eng/partn.../index-eng.asp

[marstec]

I guess if you are at risk of impulse spending, then it's a good idea to have a low limit. Personally, I have very high limits on two cards, a Visa and a Mastercard. I never maintain a balance and I am pretty careful about my spending...to me, learning to live within your means is a good life lesson. A $500 limit isn't much, and might be a hinderance to you when you need it for larger purchases, particularly things like electronics (to take advantage of the extended warranty).

[Shwa Girl]

Baggravation, I don't believe that you'd have to reapply. If you were good at paying your bills with the $1500 limit, it will probably stay on your file, while officially, your credit card statement will show $500. Most banks will up your limit automatically if, by chance, your balance is always close to your limit. For me personally, I've had to ask my bank in writing twice not to increase my limit without my express permission, because they kept raising it higher. When I get those routine calls a couple time a year, they keep mentionning that I'm already approved for a higher limit and ask if I want it raised.

Great minds think alike.
Same request to the bank, here.

2013 resolution - less credit and more cash money.
Credit is only for emergencies that the emergency fund can't handle.
Like if the roof blew off in Hurricane Sandy and insurance company said it was an Act of God.

[blueeyetea]

[ETA: As of January 1, 2010
"Consent for credit limit increases on credit cardsFederally regulated financial institutions have to get your consent before they can increase your credit card limit. If you give verbal consent, the institution must provide confirmation in writing no later than your next statement."[/QUOTE]

Well that's good, and it explains why I get calls every six months or so asking if I want my limit raised. They keep telling me that I'm approved for $2000 more than what my limit is, and I keep saying it's fine where it's at.

[Baggravation]

Thank you everyone! The guy at the bank made it seem like I made a HUGE mistake so I thought I'd ask my fellow SCers for their advice. I know I can always count on you! THANKS!

[sporatic]

Thank you everyone! The guy at the bank made it seem like I made a HUGE mistake so I thought I'd ask my fellow SCers for their advice. I know I can always count on you! THANKS!

"The guy at the bank" works there and gets paid for that job. You need to look from your perspective. Don't worry, if lowering helps you control your spending then you did a really good job . It is way more important to have spending control or being debt free rather than carrying a balance and having a better credit limit.

[tobiwobi]

yea I do this all the time and get the same crap from reps... this one time I had 2 mastercards, I called to cancel 1 and the rep on the phone cancelled the card but transferred the credit limit on that card to the remaining card without even getting my authorization to do so. my intent was obviously to cancel the card and the associated credit with it.

Technically, part of your credit score is influenced by 'total credit versus total available credit'. But you want that 'total available credit' to come from a low interest line of credit, not high interest credit cards. So you made the right decision.

[Nayya]

If you are happy with this that is great. However if you wish to apply for a loan or a mortgage in the future the lower limit could have a slight negative affect due to credit utilization. Part of your credit score is determined by this factor. As an example if you have a $250 balance on the $500 limit you have used up 50% of your amount available. With a $1500 you would have used up only 16.7%. It is always recommended to keep your balances under 30% of your total credit amount available for credit score purposes. Just a thought.

I thought they would count it like if your CC available credit was used to 100% (like if your cc was full) when they calculate for new loan/mortgage or something. so then the lower your cc limit is then better? or maybe I just got it wrong.

[Baggravation]

I thought they would count it like if your CC available credit was used to 100% (like if your cc was full) when they calculate for new loan/mortgage or something. so then the lower your cc limit is then better? or maybe I just got it wrong.

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. That's what I'm trying to do at the moment but I'm only going off of what I've heard. I'm pretty much a novice when it comes to credit cards. I don't really understand how loan/mortgage works and I would also like to hear from some experienced SCers on this topic.

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?

[sweet sparrow]

Credit is only for emergencies that the emergency fund can't handle.
Like if the roof blew off in Hurricane Sandy and insurance company said it was an Act of God.

I've always thought that was hilarious.
1. The insurance company must put the blame on someone, so God it is.
2. God *really* wants my roof for some unknown reason.

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. That's what I'm trying to do at the moment but I'm only going off of what I've heard. I'm pretty much a novice when it comes to credit cards. I don't really understand how loan/mortgage works and I would also like to hear from some experienced SCers on this topic.

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?

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!