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POSTED BY ON February 25, 2013 11:36 am COMMENTS (11)
Hi,
I have a small query and need some feedback on that.
With incerasing Credit Card frauds, I was wondering if reducing the limit of credit card would affect the CIBIL score anyways. I have a credit card from SBI with a limit whcih I am not utlising to full anyways and sees that won’t be using in long term future as well.
If I place a requets with bank to reduce my credit limit for safety, will that be reported to CIBIL and affect my credit score either positive or negative, or it will not affact the score at all.
Regards,
Ashish
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Dear Ashish,
Reducing the credit card limit would have no affect on your score. However, there could be 2 future implications of this. 1) If you need the credit in future for some unforeseen reasons they would not be available to you. 2) If you opt to increase your limit in future then, the bank will again evaluate your credit report to take their decision and there could be possibilities of a rejection depending on your report at that point of time.
Regards,
Credexpert
Dear Credexpert,
Agreed, thanks.
A question from a novice:
Manish says:
“Ideally you should reduce your credit card limit to such a limit that your overall usage does not cross 60-70% of your total limit .”
Does this imply that if one uses 90-100% each month but pay it all before due date will still have a low CIBIL score?
I don’t do this. Just curious.
Yes FFC
It has an impact, low intensity , but still it does . Even if you pay 100% of your dues on time , it is recorded how much of your overall limit do you use . Once of twice if you touch your limit, its not a big issue . But for a person who is touching his limit very regularly, just see how will he be seen .
Person 1 – Limit 2 lacs on cc , touches 1.8/1.9 lacs every month
Person 2 – Limit 2 lacs on cc, touches 30-40k per month .
Now which person looks more dependent on credit ? In the credit report, there is a column which talks about the “highest amount used” (or something like that) , which records the maximum usage of the credit card.
While this is not such a big issue overall , still it has some level of impact .
Manish
Thanks Manish,
Yeah you are right in saying controlling myself… this plastic money makes you spend more than the paper money… there are few people, though who knows how to tame the plastic money and use it to the best and I am trying to be one of them soon :-).
Regards,
Ashish
Hi Ashish & Ashal
There can be a indirect negative effect . Consider this …
Your overall usage as percentage of your limit matters . So if your limit is Rs 50,000 and you are using 45,000 or 48,000 (close to 80-100% of your limit) , then its not considered very healtly . because you are on the verge of the limits , and it indicates that there is a healthy chances that you can cross that.
Now imagine that your usage is 45,000 per month (on max side) , and your current limit is Rs 1 lac, so you are not crossing 45%-50% of your overall limit .
But when you reduce your limit from 1 lac to say 50k . Now suddenly your usage will be 90% of your overall limit (new limit) , over time, this might bring some negativeness in your report .
However note that this has a small impact, not a very big one . Ideally you should reduce your credit card limit to such a limit that your overall usage does not cross 60-70% of your total limit .
Manish
Dear Manish,
Thanks for opening up this view. Yes you are right in highlighting the usage. Frankly speaking I hold two credit cards with a limit of about 3L and 60K. I am at the most utilising about 20-25K on a regular basis and rarely it goes to 55-60K in case I have to travel in a certain month which is once or twice a year. My wife also holds a credit card for about 3L limit which can be used in case of emergency and she also has an add on card on one of my card.
So if I look at the limits are very high for us and considering the frauds that are happening around, I was thinking to reduce the limit of cards with higher limit (self and wife to about 1L).
Ok in that case lower the limit for credit card which has the limit for Rs 3 lacs at the moment. You can reduce it to 1 lac . For the another credit card which is at 60k , I think its fine .. More than the limit, you have to control , yourself 🙂 and your security !
Manish,
I use a credit card and having the limit of 20,000/- Rs. Normally my monthly expenses goes to 6-8k, and some times goes to 10-15k. Whenever my expenses reach to 15k I immediately pay the credit card unbilled expenses and do some more purchasing with the same credit card. So by doing payment before the bill generation, sometimes I do expense more then 20,000 limit. This way my unbilled amount does not goes above the 20,000 limit, and utilize more(25-30k) with the same 20,000 limit credit card.
Does this affect the CIBIL report.
Dear Ashish, as you are reducing your limit, from bank’s point of view, it’s a healthy sign but it’s not going to impact your CIBIL score in any way (positive or nagetive). Just like Increasing your limit by bank does not impact your CIBIl Score either.
Thanks
Ashal
Dear Ashal,
Thanks for your response.
Regards