Thursday, 18 September 2014

Credit Card Tricks

This morning was interesting. I woke up and checked my emails and saw that CC2 was increasing my credit limit from £6,800 to £11,800 from November. That is a £5,000 increase! 

This made me think, I started to aggressively pay off my debt in February 2014. Since then all three of my credit cards have increased my limits. CC1 limit is now £12,000 and CC3 limit is now £4,200, come November (based on today's debt), I will have £17,767.99 of available credit. This is potentially a problem for a spendthrift like myself. That is a lot of money to spend......

I've learnt my lesson - I promise. 

Now I know credit card companies will often increase limits on a yearly basis, however, CC3 had not increased my limit in 3 years. I suspect it was because I did not use that card during those 3 years. However, within weeks of me transferring a balance to that card, my limit increased. Surely the credit card provider should be thinking that if I have transferred a balance that I may be in financial difficulty and the last thing I need is access to more credit? Or is the prospect of me spending that money and paying interest just too much of an incentive to increase my limit?


Credit card balances seem to be a double edged sword. My understanding is that because I have had each of my credit cards for a long time (two for over 10 years), and have always made my minimum repayments (even, if at times, late) I am rewarded for this by an increase of my credit limit. The high balances I have in turn now result in me having a good credit record (apparently if I have decent limits, I must be 'good for it'). I find this rather bizarre. Now I know I am the one who spent the money and only I am responsible for my spending, but, my credit limits have continually been increased despite the fact that I have consistently had substantial balances. 

This has encouraged my spending as the money was there available to me. 

To put this into perspective CC1 initial limit in 2001 was £500, it is now £12,000. My highest balance on this card was £9,775.08 in December 2013 with a limit of £11,000. Yet my limit has still been increased. 


I do have a bit of a bug bear with CC1. Since I started paying off my debt (I have concentrated on this card as it had the highest balance and had the highest interest) my credit limit has increased and I am continually being bombarded with letters, emails and text messages about transferring balances to it and transferring money to my bank account. I had never been offered these 'opportunities' until I started paying off my debt. 

As it transpires, the increase to CC2 is somewhat useful to me. I need to transfer the balance of CC1 to keep the 0% interest and I was not especially keen on opening a new card and will now be able to transfer it to CC2. When CC3's 0% interest period expires in February I can then transfer it to CC1 or CC2. But long term, I only want one card so two of these will go eventually. 

Has your credit limit increased once you started paying off debt? Has the increases encouraged your spending? What do you think?

* Photo courtesy of www.freedigitalphotos.net 

This post is part of Financially Savvy Saturdays. Check it out!!


brokeGIRLrich

18 comments:

  1. I never carried a balance but when I stopped using the cards frequently, I started receiving 0% balance transfer offers. I manually request a credit increase every 18 months or so as I like to have it available in case of emergency, but understand that it is tempting to see it as free money, easy to spend.

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    1. Yes, I think you can afford the minimum repayments, and are not disciplined about your money, it is very easy to fall into the free money situation.

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  2. During my credit card debt days, my overall limit across 3 cards was just under £30k and as with you, they started increasing as I was paying off the debt. I mentioned this to a colleague and she suggested contacting them to reduce the limits (to remove temptation). I think I only got round to contacting one, which did reduce it back to the old limit.

    If you are bombarded with letters etc, again, you can contact them to ask to be removed from their 'marketing' list.

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    1. No one needs these limits! I did contemplate reducing my limit but CC2 increase is beneficial as I can transfer my balance to it. However, I am tempted to reduce CC1's limit though as I don't need a £12k limit in order to facilitate balance transfers.

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  3. In the US, a credit increase can be a good thing if you don't spend the money. Available credit vs used credit is one of the many items on the matrix in determining your credit score. But that only helps of you don't use it.

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    1. Yes, this also broadly works in the UK too. However, sometimes it can backfire where mortgages are concerned as mortgage lenders sometimes worry you may go crazy with the availble limit

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  4. As you reduce your overall debt you'll get more and more of these offers. Think of this as a chance to learn new habits. :-) We automatically throw every single offer in the trash when they come in -- don't even take the time to read them.

    Also, once you live on a budget (we went to a written one to solidify the habit) the amount of your credit limit no longer matters. We save up over the year for large expenses and pay off our credit cards twice a month. I have no idea off the top of my head what our credit limits are. ;-)

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    1. Yes, I do dismiss most of the offers. Ignorance is bliss!

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  5. It's nice knowing that the banks view you as less of a risk, but the risk of having that extra balance to spend it tough. I typically like to ask them to lower it back down.

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    1. In the future I will either reduce the amount or close accounts. At the moment the increase is useful to me as I can swap the balances between cards and keep at 0% interest until the debt is cleared.

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  6. My credit limits definitely went up after paying off my debt, but it hasn't effected my spending much. My credit score definitely benefited - but I don't know if you guys have them in the UK.

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    1. Higher available credit can result in an increase to a credit score. I think UK credit scores are a bit different to the USA. Each lender has its own variation so your 'score' for one lender can be 'excellent' but only 'very good' to another.

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  7. At one time I think we had enough available credit to buy a small developing nation and they keep trying to raise it and offer us more but how much credit could we possbily use? I don't think anyone needs over 10K in credit at any time. Just me maybe?

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    1. I agree, the amount of credit I have available is ridiculous!

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  8. We just got bumps upwards in our credit limits of course without prior consent. Good thing we have a solid grip on using the credit cards and PIF each statement, otherwise it can lead to encouraging more revolving debt. Like the site redo :)

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  9. Thanks Kassandra, I thought it was time to update. I have a grip on my debt now, but I don't like the banks trying to encourage me to spend.

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