How to reduce your credit card limit
- Contact your bank provider (online, over the phone or in-branch)
- Request the credit limit decrease
- Your credit limit will be updated within 24-48 hours
Your credit score is based on the details listed on your credit file, which includes information about active and closed accounts. This means any change to your credit file, including cancelling a card or reducing your credit card limit, could affect your credit score.
But how do you know if cancelling a card will have a good or bad impact on your score? This will really depend on your individual situation, and whether cancelling the card would be considered a positive or negative sign by lenders.
For example, if you have a high credit limit, reducing it by cancelling a credit card would likely be seen as a positive and may improve your credit score.
In contrast, cancelling your only credit card that your always pay off on time could have the opposite effect as you'll no longer be demonstrating your ability to pay off your debts on time.
Because a credit card will be just one part of your credit file, the impact it has (or doesn't have) on your credit score also depends on other details listed on your file. So before you go ahead and cancel your credit card, let's take a look at three ways it could help or hurt your credit score.
In general, your credit score is improved when you reduce some of the potential risks for lenders. So, if cancelling a credit card leads to any of the following changes, it could have a positive impact on your score:
Check out more ways to improve your credit score
If your credit history also shows you've recently made some late payments or have defaulted on accounts, cancelling your card might hurt your score or leave it unchanged.
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Debt-to-credit ratios are an important factor for credit scores in the US, showing how much debt someone is carrying versus the amount of credit they have access to through cards and other accounts. Cancelling a card could affect this ratio by reducing the amount of available credit.
As there is a lot of information online about US credit ratings, this term often comes up when you're searching for details on Australian credit scores. However, debt-to-credit ratios are not a factor for credit scores in Australia because our credit files only show the maximum amount of credit available (i.e. your approved credit limit for a credit card).
Finder confirmed this with credit reporting bureau Experian's general manager of credit services for Australia and New Zealand, Tristan Taylor, who told us "no credit bureau can report the balance on credit cards or any other facility".
The privacy act explicitly states which data elements can be collected and shared by a credit bureau, and balance is not one of them.”
Taylor said the main elements relating to a credit facility that a credit bureau can collect and share are:
So, your credit score is based on the total amount of credit you have access to, as well as repayment history and applications for credit. But when you apply for a credit product, lenders may factor in the amount of credit you owe as well as your total access to credit, as part of their assessment.
Getting rid of a credit card doesn't always have an impact on your credit score. For example, if you've just got a new credit card and then closed the old one (or vice versa), it may not change your overall score.
It's also important to keep in mind that your credit score can fluctuate as more details are added to your credit file. So even if cancelling a credit card does affect your credit score in the short term, how you manage your accounts over time will play a greater role when it comes to getting approved for the cards and loans you want in the future.
Yes, reducing your credit limit is one way that you can improve your credit score and can be an alternative to cancelling your card altogether. Having a high total credit limit can impact whether you'll be approved for further credit and also damage your credit score.
If you have multiple accounts with unused credit or high limits that you're not using, you could consider consolidating your debts or reducing your credit limit to boost your score.
Yes, you can but most Australian financial institutions limit you to one application for a credit limit increase every six months. Please note that you'll need to go through a credit check each time you apply for a credit limit increase.
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