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[Friday, August 08, 2008]
Credit Card Limits - Do You Always Need That Increase?
Good or excellent credit consumers have always been entitled to superb credit limits on their cards. However, their hunger for more of available credit has never subsided. Even today, owners of $50,000 credit line are looking for ways to extend it and the greater limit they get the more confident and respected they feel. However, is it always that great to have a limit to everybody's envy?
We have recently got a curious question from one of our readers, who wonders whether it would look reasonable if he asked his credit company to, would you believe, lower his credit limit to $3,000 which at the time was $23,000.
You would think it is nonsense. Why reject such a great privilege when your creditor puts trust in your financial responsibility and values your creditworthiness?
Well, as practice shows, there are people belonging to the category of valued good credit customers, who do not actually need extended credit lines just because they will hardly use even 30% of it. The author of the question is just this kind of credit users and is determined to lower his credit limit unless it hurts his credit score.
What we suggest will probably upset the poster. As a matter of fact, lowering one's credit limit by as much as $20,000 will not only damage their credit score but will make them look as a very bad credit risk for current and future creditors.
Why should a good credit consumer suddenly decide to cut the available funds by that much? What is so distressing happening in their life that makes them think they won't cope with their minimum credit payments? Loss of job? Falling income? An illness?
All these questions will make a creditor nervous and chances are they will not only reduce the credit limit more than previously asked but will also close the account for good. Other creditors will follow, be sure. No one wants to take on risk especially in today's tight credit market conditions, rising delinquency rates and defaults.
And all these operations will inevitably be reflected in your credit report, spoiling your credit reputation and chances for new credit lines in future. From a good credit, privileged customer, you might be knocked down into the category of subprime credit users, when there are no any missed or late payments on your name actually.
Painful, isn't it? Well, there is no need to go through it, as there's no need in lowering your credit limits. Your creditor will not force you to use most of your credit available, especially as a high credit debt ratio is a negative for your credit score. Thus, if you do ever get a lower credit limit but keep carrying the same size balances, it will also pull your scores down: the available credit is less and the debt is the same.
You may have a $23,000 credit limit and use only $1,000 of it and it will only benefit your credit rating. It is enough for your creditor to know that you've been granted an extended credit line as it poses you as a good credit risk. It is your legal right to use or not to use your high limit credit card, so what's all this fuss about?
So, be happy with your high limit credit card. Keep that $23,000 credit limit, use only $1,000 of it and it will work perfectly well for your debt-to-credit limit ratio and your credit rating.
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