Credit Card - impact on credit score

[Fromtherough]

We're currently looking to move house. This will involve taking on a significantly higher mortgage, so we're keen to keep finances tickety-boo. I came in from work and my wife to tell me that she's paid off our credit card. Fair do's. However, whilst on the phone, she instructed them to reduce the credit limit to £10k (from £20k). Would this affect our credit score? Not sure it would but see why it could.

 

[drdel]

No.

 

[LIG]

No.

Not what I was told when I asked for a reduction to my CC limit, Del.
Counterintuitive I know, but (apparently) if you've got a big limit and have made all payments as required, you're bigger limit is seen as a positive.
Thinking back now, I asked more than 10 years ago so maybe things have changed.
Could ask them how it affects your score?

 

[GreiginFife]

Actually the answer is more a yes and no kind.
There are many factors involved in not just credit scoring but underwriting.

Credit scores are just a guideline or startpoint for most lenders.
Having a large credit limit and small balance works well in some instances, responsible credit management view. Contrary to that, some lenders will look at CAIS data (for example) and see you have a large credit facility available and get nervous that you could spend all of it and become a high risk.

Sorry, missed the bit relevant to you as I deleted it. The issue of reducing your credit limit may affect it IF (and it's only IF) a manual underwriter was to assume you had the limit reduced by the company rather than voluntarily as there is no information available to say WHO reduced it or why. Otherwise it will still look like you have a large credit facility (and £10k is considered a large single facility) available to you to user at will.

The simple answer is, it depends on the lender and their policies.

Not a great help I know but such are the vagaries of the credit/lending landscape.

(For info, my experience of this was spending two years working with the retail lending division of a high street bank looking at their processes and automating a lot of it).

 

[Cherry13]

My advice would be to reduce it further if you don’t need access to it in the short term. Some lenders can view ‘access to too much credit’ as a negative. We’re in a similar process and on the advice of my wife (she works in the sector) we’ve reduced all limits for now. Similar to the point above from Greiginfife.
All the best in the house hunt. It can be a stressful period.

 

[Captainron]

That £10k is potential debt which may mean they lower the amount you can lend by £10k.

 

[Fromtherough]

Thanks guys. Seems it's a minefield and even luck of the draw. How people are meant to know what approach to take is beyond me. My wife thought she was doing the right thing so hopefully it won't count against us.

 

[PhilTheFragger]

Credit scoring is a perverse and weird system that is impossible for the average human to understand.

Example 1 Daughter wanted to have her own mobile phone contract when she started work.

She had come out of Uni with no student overdraft, managing her money nicely and didn’t even have a credit card, never borrowed, in work, living at home, you would have thought no problemo .

But no credit history = big bad , she had to take out a credit card and use it to build up a credit history. Before they would lend her a bean.

Example 2
We moved house just over a year ago.
Downsized , reduced our mortgage by 80% but they wanted us to reapply.

Initially refused to lend us the money as there were CCJ’s against the previous owners of our new house.

Computer said no , despite the new mortgage amount having a loan to value of just 11% and no adverse credit history on us

It wasn’t until I pointed out that the original mortgage had provisions to transfer the mortgage to another property and keep the same interest rate (0.23 over base oh yes 👍) that they let us do it

Utterly bonkers

Back to the OP, you say she paid off the card, were you running a solid balance on there?

A card that is paid off each month or every couple of months is what they want to see, solid credit card debt is generally a sign of poor financial management ( unless you are being Uber savvy with interest free balance transfers)
They might be concerned that you may have borrowed from someone else to pay off that debt ( but that should show on another credit search)

Generally I’d have said leave well alone, but it probably won’t make a scrap of difference

 

[IanM]

It’s been a few years since I worked in credit management, but rules of thumb as follows:
Paying instalments as they fall due is always good! Clearing a balance is never bad. Mortgage lending credit policy varies from lender to lender, but the reduction of the limit wouldn’t bother me at all.

The key drivers for new application , LTV% (loan to value), affordability (income expenditure breakdown) and previous repayment track record.

 

[Fromtherough]

We normally use the credit card for online purchases and holidays (flights). This is usually cleared at the end of the month. Recently, we've been abroad twice, so there was circa £2k on there, although we'd been paying the monthly payment. She just decided to clear it and thought reducing the limit would be sensible. Which, when thinking about it, when would I ever spend £20k on a credit card? However, she didn't think of any potential connotations this could have. Hopefully, as some have suggested it won't have any impact. There should be some published rules and/or consistency.