Why are credit card limits so high?
Discussion
My original post was going to include numbers but it read a bit like a humble brag so I won't go into specifics but broadly it seems to me that credit card limits are dementedly high for most people where I'm aware of the limits and the income. They seem a little high on an individual card level but when you combine all the cards together they go up to insane amounts. Why is this? I could personally, and so could many people I know, go and spend WAYYYYYYYYYYYYYYY beyond our means or realistic hope of paying back without it being rational to seek a repayment plan.
Yet bizarrely my bank recently cut my (unused) overdraft limit by 50% to about 1% of my aggregate credit card limit lol.
Yet bizarrely my bank recently cut my (unused) overdraft limit by 50% to about 1% of my aggregate credit card limit lol.
It depends on the credit card company in my case. My own bank who know exactly what I earn and more importantly spend have given me a credit limit of around 1.5 months take home pay. My Amex has a limit 3 times higher despite having a ludicrous interest rate. If I maxed that out I’d be in quite the predicament for a very long time so I get your OP. I have a third card that I don’t use it’s just a backup when travelling abroad and that’s got a credit limit that seems to endlessly rise I can only assume in order to tempt me into using it. Between the three I could get myself in real trouble.
I have 3 credit cards (long story).
Credit limits are:
1 - 6x net monthly income
2 - 3x
3 - 2x
My savings are almost 16x the total of the 3 limits so I would have no problem paying them off. However, I haven't paid any interest for at least 20 years as balances paid by DD every month.
3 card rarely used, 2 occassionslly & 1 at every possible chance (gives cash back).
Credit limits are:
1 - 6x net monthly income
2 - 3x
3 - 2x
My savings are almost 16x the total of the 3 limits so I would have no problem paying them off. However, I haven't paid any interest for at least 20 years as balances paid by DD every month.
3 card rarely used, 2 occassionslly & 1 at every possible chance (gives cash back).
I once had three cards when I was earning £12.5k a year, the limits were:
Card 1: £15k
Card 2: £10k
Card 3: £8.5k
That was insane and I cut then down to just the one which is all I have now. That still has a limit of £6k if I want it but I opt to keep the limit set at £2k. Back when they could raise the limits without asking you (you now have to approve limits raising) Barclaycard upped my limit to £24k which is bonkers as I was only earning £8k a year part-time then!
Card 1: £15k
Card 2: £10k
Card 3: £8.5k
That was insane and I cut then down to just the one which is all I have now. That still has a limit of £6k if I want it but I opt to keep the limit set at £2k. Back when they could raise the limits without asking you (you now have to approve limits raising) Barclaycard upped my limit to £24k which is bonkers as I was only earning £8k a year part-time then!
I’ve got 6 credit cards.
Total limits around 100k
It’s handy for making large purchases fully protected on 0% terms, whilst remaining within the 25% or max credit utilisation which credit file companies want to see.
I can still even now get 0% terms over 24months with a 0 transaction fee, took a new offer a few months ago so…..why not!?
It doesn’t make sense to lower the limits while there’s a free to use line of credit available.
Total limits around 100k
It’s handy for making large purchases fully protected on 0% terms, whilst remaining within the 25% or max credit utilisation which credit file companies want to see.
I can still even now get 0% terms over 24months with a 0 transaction fee, took a new offer a few months ago so…..why not!?
It doesn’t make sense to lower the limits while there’s a free to use line of credit available.
It's to encourage further spending.
Seems most peoples attitudes here to credit seem sensible but venturing into other areas of the internet and into the recent past you'll find that some people regard credit as effectively "free money" and regard the total amount of credit they can get as a measure of their financial worth as opposed to something sensible such as assets minus liabilities.
Seems most peoples attitudes here to credit seem sensible but venturing into other areas of the internet and into the recent past you'll find that some people regard credit as effectively "free money" and regard the total amount of credit they can get as a measure of their financial worth as opposed to something sensible such as assets minus liabilities.
Doofus said:
I don't earn any money these days, having effectively (but not officially) retired.
My credit card limit is about 10% of the cash I have with that particular bank. I'm sure they'd increase it if I asked (I've never needed to), but my point is that not all limits are 'high'.
I am retired and have the problem with my credit limit being too low. It seems only regular pension / annuity or earned income counts and I have none of those so computer always says no to credit limit increase. Anything beyond normal weekly shop I have to use a debit card.My credit card limit is about 10% of the cash I have with that particular bank. I'm sure they'd increase it if I asked (I've never needed to), but my point is that not all limits are 'high'.
Apart from stupidly drawing cash out using my credit card and not my debit card (so I incurred a transaction charge, then immediately paid off the balance once I realised my mistake) I've never paid any interest or charges on either of 2 cards I hold with the same bank that I've had for maybe 25 years.
I kept one for work related purchases and the other for personal and have them set to be paid in full each month. Despite not using much credit and now in a similar situation to Doofus and I'm retired/living off savings/very small pension, my credit limit has slowly gone up. For the last financial year the limit on the pair is more than 2x what my income has been.
I just keep them ticking over and use them alternately once in a while (then paid off in full anyway), just in case I need credit and then I can give notice on savings. I don't know what my credit rating is as I've never checked it, so I might do that just out of interest. I wonder if they will just leave the limit where it is (slowly eroded by inflation) or actively reduce it? I only have £1 in the current account with that bank as I now use another that has better savings rates and pays interest on the current account. I just transfer money across ready for the CC bill if I use it. They've probably made plenty out of the cut from my CC transactions over the years, but I do wonder if they will keep letting have the account and associated credit cards. Like others have said though, perhaps they just hope we'll use this line of credit and get suckered into some stupidly high APR...
I kept one for work related purchases and the other for personal and have them set to be paid in full each month. Despite not using much credit and now in a similar situation to Doofus and I'm retired/living off savings/very small pension, my credit limit has slowly gone up. For the last financial year the limit on the pair is more than 2x what my income has been.
I just keep them ticking over and use them alternately once in a while (then paid off in full anyway), just in case I need credit and then I can give notice on savings. I don't know what my credit rating is as I've never checked it, so I might do that just out of interest. I wonder if they will just leave the limit where it is (slowly eroded by inflation) or actively reduce it? I only have £1 in the current account with that bank as I now use another that has better savings rates and pays interest on the current account. I just transfer money across ready for the CC bill if I use it. They've probably made plenty out of the cut from my CC transactions over the years, but I do wonder if they will keep letting have the account and associated credit cards. Like others have said though, perhaps they just hope we'll use this line of credit and get suckered into some stupidly high APR...
I remember when I was a manager is Asda I had one of my team who had learning difficulties and had somehow managed to get himself 5 credit cards with around £30k of combined limits, was always scared someone would take advantage of him, never happened thankfully.
When I was younger utilised credit cards a fair bit and ended up with some limits that I would have had no chance of paying back if I'd maxed them, now at 41 I use my Amex for anything I can and settle the bill each month, they don't disclose your limit but do allow you to put in a value and they will tell you whether they will authorise it.
When I was younger utilised credit cards a fair bit and ended up with some limits that I would have had no chance of paying back if I'd maxed them, now at 41 I use my Amex for anything I can and settle the bill each month, they don't disclose your limit but do allow you to put in a value and they will tell you whether they will authorise it.
Somewhatfoolish said:
Well that was my alternative theory, the banks have me down as a moron who will use the limits...
That's pretty much it isn't it. It's convenient but if you don't clear it every month it's a great earner for the banks.
Good enough that they don't mind plenty of people defaulting.
As it happens I'm about to reduce mine down to £1000.
Anything more and I'll either get a loan or take our an 18 month interest free jobby.
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