Reducing credit card limits

[unjung]

Originally Posted by Berticus

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.

As a few others have mentioned, I don't believe that cancelling cards is ever a good idea... part of your score is based on the percentage of your credit you're using. So perhaps if you were to pay all your cards off... otherwise I don't believe you should cancel any.

Originally Posted by Berticus

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.

There was a humorous line from a government finance official recently, something about needing to fix the financial system so Americans could use their credit cards again. He obviously missed the fact that the whole problem with the system is that there was too much credit available. My philosophy (not always successfully adhered to) is that you should only buy on credit what you can pay off immediately. My higher limit is for emergency use only.

 

[otc]

I sure hope you arent paying money to use that amex card...because it sure ain't worth it.

 

[SField]

I don't know how effective that will be vs just controlling your spending. I think that unused credit over the long term could represent a liability as it indicates that you have the potential to suddenly splurge and then have trouble honoring payments on a large line of credit or mortgage.

Personally I just use a Visa debit most of the time now. I've been maniacal about only buying things I can pay cash for. I do use my CC a lot but nothing I cannot pay off later that day.

 

[nate10184]

While we're on the topic how do they calculate % use of credit card when you have more than one card.

(balance a + balance b) / (limit a + limit b)?

Or do they look at % of each individual card. I barely ever use 15% of my combined limit in a given month but I noticed that I used almost 50% of one card with a low limit last month because it has better rewards. Is this a bad idea? I always pay them off at the end of the month and have never carried a balance.

 

[DJ MAC]

as already covered by the first reply, your credit score can be negatively affected with reducing credit limit...you always want to shoot for the highest u can get...that doesn't mean u actually CHARGE UP the card...

 

[FidelCashflow]

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.
That is awesome.

I want to try and reach the point where I don't even carry my credit card in my wallet. But right now, it's like a security blanket for me that I feel like I need to carry around just in case something unexpected pops up.

Originally Posted by Berticus

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.
What you're saying absoloutley makes sense. But there is that siren call that to being able to spend huge amounts of money instantly and deal with payments later, that's why the credit card companies dole out these huge limits. That temptation can make rational people to irrational things. I've had my credit card for 6 years now, and I only ever had any issues with it in the last few months. It was a little scary to realize I was starting to slip because before this, I thought it could never happen to me. Before I called the credit card company, I actually thought to myself for a second "But, how am I gonna pay for all my stuff if I go on a big shopping trip or vacation and I only have a $1K limit on my credit card..." momentarily I was stuck, until it dawned on me "CASH!" That's when I knew I was really being sucked into the credit card mentality.

 

[JayJay]

Originally Posted by FidelCashflow

Before I called the credit card company, I actually thought to myself for a second "But, how am I gonna pay for all my stuff if I go on a big shopping trip or vacation and I only have a $1K limit on my credit card..." momentarily I was stuck, until it dawned on me "CASH!" That's when I knew I was really being sucked into the credit card mentality.

I agree that there is a credit card mentality. Studies have shown that use of cash or a debit card lowers overall spending. In fact, as an example, fast food restaurants started accepting credit cards after realizing that people spend more per order when paying with a credit card. Tips in restaurants are also larger when the person uses a credit card rather than cash.

 

[Seven]

Before I called the credit card company, I actually thought to myself for a second "But, how am I gonna pay for all my stuff if I go on a big shopping trip or vacation and I only have a $1K limit on my credit card..." momentarily I was stuck, until it dawned on me "CASH!" That's when I knew I was really being sucked into the credit card mentality.

Why is it really any difference paying with cash versus credit? If you could not afford to buy it with cash, don't use the credit card. Anyways, for purchases of over $100 or more, I prefer the security of a credit card in case of damages, ripoffs and theft.

 

[mack11211]

It also depends on how greedy the banks are.

BoA and Citi are nasty.

One card I have is with the university credit union where I went to grad school. The rates are lower and the policies more reasonable. If I have to carry a balance, I'll carry it there.

 

[FidelCashflow]

Originally Posted by JayJay

I agree that there is a credit card mentality. Studies have shown that use of cash or a debit card lowers overall spending. In fact, as an example, fast food restaurants started accepting credit cards after realizing that people spend more per order when paying with a credit card. Tips in restaurants are also larger when the person uses a credit card rather than cash.

I never new that before, but now that I think about it, I'm pretty sure I'm one of those guys who would tip more when paying on credit card. It's the whole "pay now, deal with it later" thing. It creeps up on you.

You've just convinced me I need total credit card independence.

 

[Dashaansafin]

Whats the difference between cards? I have the platnium student BOA card everybody and thier mother has...

 

[turboman808]

I got rid of my credit cards about 3 years ago. At first it was tough. Like getting off of drugs LOL

After a year I don't miss them and don't need them. I use my debit card and cash for everything.

 

[indy116]

Originally Posted by Dashaansafin

Whats the difference between cards? I have the platnium student BOA card everybody and thier mother has...

As long as you don't have an annual fee, you're probably alright. Some will offer rewards of some sort.. frequent flyer miles, cash back, gift cards, etc. The student cards may make donations to the alumni association or something.

My card was the MBNA student card, now BoA. It's the one that has raised its limit to be more than my annual salary.

I only use it for online purchases, and I use the ShopSafe feature that generates unique CC numbers for each vendor. Won't put the debit card online.

I ran my FICO score today and found it to be very, very good. It said there were no negatives on my credit history, despite having the huge available credit limit.

 

[billiebob]

Amex charge cards are just like debit cards anyway, just with perks and an annual fee. You generally have to pay the bill every month.

 

[callen]

If you are still looking for a card look at the AMEX Starwoods card it has no monthly fees and solid rewards. A good friend worked for Amex corporate and said it was the best value.