Bad Money Decision Confession Time #5

While cleaning my son’s closet, I found some old statements from Credit Card #2 (it’s the one with a $23,950 credit limit right now). It was interesting to see how it progressed.

DATE ~ Balance / Credit Limit ~ $ Away from Credit Limit

1/22/2002 ~ $7484 / $7550 ~ $66
2/20/2002 ~ $7432 / $8050 ~ $618
8/21/2002 ~ $7713 / $9450 ~ $1737
2/14/2003 ~ $8924 / $9450 ~ $526
3/17/2003 ~ $8746 /$11650 ~ $2904

What I find interesting is that they seemed to raise my credit limit when I was close to the credit limit. They gave me plenty of rope, and I took it.

I put this under the Bad Money Decision Category because I could have called the credit card companies and requested that they lower my credit limit. I was in no way obligated to accept the raise but I didn’t complain. For me, that was dangerous because once they raised the limit, I would max the card out again. Then they’d raise it…and I’d max it. It was a viscious cycle and that’s how my balance grew to over $23,000.

Once the credit cards are paid off, I will probably keep most of them open. Some of them my husband and I have had for a long time and that is good for your length of credit history. But I will call to reduce the credit limits. I can’t think of a reason why we need such a high total credit limit ($57,000) for our income.

Posted by Tricia on August 19, 2006 at 2:00 PM in Confessions | 5 Comments »
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Her responded:
Posted: August 19th, 2006 at 4:43 pm
Don’t ask them to lower your credit limits, unless you really think it’s too tempting. Lowering your credit limit will increase your debt-to-credit ratio and lower your credit score. Besides, the higher credit limits can be helpful if you’re manipulating your debt, i.e. by transferring all your debt from high interest cards onto one low rate card.
Tricia responded:
Posted: August 19th, 2006 at 5:03 pm
Her – Thanks for stopping by and thanks for stressing the point of debt utlization ratio. I do plan on leaving the credit limits as is until all of our credit card debt is paid off. Once it is, I will lower the limits because if I keep the balances at zero the limit will not matter. It will stay at 0% utilization and there should be no affect on my credit score.

At least that’s what I’m thinking. If anyone knows different – please let me know…
mapgirl responded:
Posted: August 20th, 2006 at 10:24 am
While Her is right about the utilization ratio, unless you’re going for other credit, it’s probably better not to hang one’s self out to dry with too much available credit.

I used to call and have mine reduced so I wouldn’t max everything out in college. Glad I did it. I’ve never been turned down for credit ever, so clearly it never actually hurt me to do it.
Dave responded:
Posted: August 20th, 2006 at 5:30 pm
Please follow Her’s advice. Aside from utilization ratios, your high limits will show others that you’re a responsible borrower, and not a credit neophyte.

If you’re tempted, why not do something like have a trusted friend hide the cards?
Mandi responded:
Posted: October 5th, 2006 at 5:22 pm
I had a card lowered from $200 to $100 a few years back and my credit report shows that I have gone over my $100 limit, up to just below $200.

I’ve also heard that closing an account brings down your credit score as well.

It might be a good idea to leave them where they are.