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Lowering available balance on CC?
DH and I are almost done paying off a large amount of CC (and other) debt. I have a line of credit that has an available balance of $15,000 and a CC with an available balance of $18000. The LOC has no balance owing (yay!) and the CC will have no balance in about 6 months (double yay!).
I dont want that high of an available balance, does it hurt my credit score to have the available balance lowered? Does is hurt to keep that available balance?
We will be paying any credit off each month, religously, once we are out of debt. Its been 5 years....we have learned our lesson. DH also had about 30k in CC debt which we have all ready paid off. He closed two of the cards that had a shorter credit history and kept the one that he's had the longest. It has seemed to slightly lower his credit score, but we didnt keep track that close. Its in the mid-high 700's right now.
More info - we plan to buy a house about a year from now, no sooner. Which is why we want to keep our scores high and get the best rate.
Thoughts?
Re: Lowering available balance on CC?
One thing I've always understood about your credit score is that they compare your outstanding debt to your available credit (what you have currently charged versus your limit) so by lowering your available credit on the card, it may end up changing your credit score.
not an expert- just what I have heard/ believe
Lenders look at amount owed relative to the credit limit as a percentage. If you pay off any CCs each month in full and are not over-spending (therefore essentially owing $0 relative to credit limit), then IMO it is somewhat of a moot point that can go either way.
Personally, I have lowered my limits down to $1-3k on the cards I use infrequently (CostCo Amex, Target, etc.) because I know I will never ever need to spend a lot of money in those stores. My primary card I have left at $10k, but I suppose I could lower it...I just leave it high as a back-up...it's rate is 8%...so if I were ever in a pinch, I could use it for a true emergency if the e-fund were gone. I have never carried a balance on this card, so it is really just-in-case.
We have gone through two home purchases in the past few years and no one has ever commented on our limits relative to our spending.
If it makes you feel better to lower the limits, then go ahead. And, because lenders have become a lot more conservative in lending anyway across the board, I really doubt anybody would bat an eye lash at you lowering a CC limit (in this financial climate it is considered a prudent choice to make).
This is what I was hoping, I just dont like having such high credit limits. I will feel better with them lower!
here's my understanding:
as PPs said, if you're paying off your CC balances each month, then lowering the limits shouldn't change your debt-to-credit ratio, and therefore your credit score shouldn't change. Two caveats here: this is only true if you wait to lower the limits until your debt is paid off, and if the amount that you spend and pay off each month remains relatively low compared to your total limits.
Another reason to think about lowering limits: I've been told that lenders look at your income vs. possible debt when approving loans and CCs, and can get uncomfortable if it looks like you have the potential to go into too much debt to be able to make your new loan/CC payments. I would expect they take this into account for mortgages as well. That is, the lower your total revolving account limit, the safer a bet you are for a mortgage, because you're less likely to get into trouble with credit card debt and be unable to make your house payments.
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