Credit Card Limits

From: Peter Martin


Hi,

I've just received the annual "we'd like to increase the limit on your credit card" note from the bank. In the past I've always accepted the increase - I never carry a balance forward on the card and I thought it might somehow improve my standing when applying for loans to show that the bank is prepared to give me a big limit on the card.

Only trouble is, I'm now starting to wonder whether the large limit actually works against me when applying for finance. Even though I have a zero balance, would the bank treat the card as fully drawn when it calculates loan amounts and repayment capacity?

Should I chuck the notice in the bin or take them up on it, from an IP perspective?

Thanks,
Pete
 
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Reply: 1
From: Duncan M


>Only trouble is, I'm now
>starting to wonder whether the
>large limit actually works
>against me when applying for
>finance. Even though I have a
>zero balance, would the bank
>treat the card as fully drawn
>when it calculates loan
>amounts and repayment
>capacity?

Absolutely they will assume the card is fully drawn and factor the minimum payment into their serviceability calculation.

Duncan.
 
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Sim

Administrator
Reply: 2
From: Sim' Hampel


Do you need the extra credit limit ?

Do you have a source of funds you can draw on (short term) in an emergency (like a LOC) ?

I believe that some banks DO look at your credit limits and consider you as having the maximum owing when calculating your sevicability.

However, a lot of them these days will look more at what your actual long term debt on the card is (zero in your case), and use that figure.

My advice is that if you are having problems with your lender because of your credit cards, maybe look at changing lenders, and if you don't need the extra funds don't use them. My impression is that in general it will hinder more than help for you to have higher and higher credit limits that you never use even in an emergency.

 
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Reply: 2.1
From: Paul Zagoridis


My understanding is most banks assume the limit is fully drawn down. That's reasonable as they don't know if you'll rush out the next day and buy a yacht or other doo-dad

Having said that I like big limits on my cards. I've been able to buy a property using cash advances. It's a good way to have excess capacity.

A friend of mine asks for limit reduction before applying for a loan, and resumes his limit once the loan is approved. So he always accepts limit increases.

Dreamspinner
 
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Reply: 3
From: Victor Mann


Banks deem credits as fully drawn, simply because you could go and draw the full amount the day after your loan application. Depending on which bank you choose they will deem the monthly payment at 3% or 5% and so adding to our monthly commitments.
if serviceability is an issue i always suggest to my clients to either reduce or in some case cancel credit cards. This has a dramatic affect on the amount you can borrow. Once the loan is approved you can reapply or increase your limits. The banks are aware of all this its just a game!

Victor
Good Hunting!!!!!
 
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Reply: 4
From: Apprentice Millionaire


My experience with a credit card limit has been that my lender has asked me to sign a statement whereby I declare that I pay my card in full every month. It has thus had no impact on my borrowing capacity despite my large credit card limit. My lender has a red umbrella in its logo.

Cheers
Apprentice Millionaire
(aka Jacques)
 
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Reply: 3.1
From: Rolf Latham


Very true Victor

They are slowly coming around though.


If you can show fully paid off for the last 3 months, RAMS for example will ignore your cards. Other lenders treat heir own cards favourably and assess them at a lower rate than an outsiders card.

We all know that the vendor and interchange fees on cards are where the banks make their $ from cards - obviously they want you to use THEIR card.
Rolf
 
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Reply: 4.1
From: Andrew S


You can always swap to a debit card or a card such as Diners or Amex that must be paid in full by the due date. In this case the limit is not taken into account by the lender, as it is not deemed as credit.

Mr Jolly
 
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Reply: 4.1.1
From: Robert Forward


Not sure who your AMEX is through but mine doesn't need the balance paid out at the end of every cycle. Though we have lowered our limit to an amount that is easily payable every month if we so chose to 'max' out the card.

Cheers
Robert
 
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Reply: 4.1.1.1
From: Owen .


I think you may have the new AMEX credit card. If you have the original AMEX charge card you have to pay it out each month (and there is no limit) otherwise they send around the goons.

Also, as far as I know AMEX cards are only available from AMEX. Nothing to do with banks or others.

I had an AMEX and a VISA card. I had the "available credit" problems when borrowing last time even though I have never carried a monthly balance forward in the 3 years I have had the card. The bank I was dealing with even issued me the card so they knew my spending patterns. I explained to the loans officer that I could by a house on my AMEX if I wanted to and yet they didn't take that into account so why worry about the VISA. It didn't sink in though so I told her to cancel my VISA. Lots of resistance to that (it was their card after all) so she eventually took it out of the calculations.

And these are the people telling us how to use the cards properly....
 
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A history of Amex (somewhat abridged)

Reply: 4.1.1.1.1
From: Paul Zagoridis


Right children gather 'round the chair and I'll tell you a fairy story...

Once upon a time in a land across the sea, a Company called American Express issued a charge card. It was green. And It was good. All the people in the land marvelled at It's simplicity and beauty. Many coveted It, but few attained the lofty income the Company demanded. Verily It had No Limit, but demanded payment in full at the end of every month.

It came to pass (as these things often do) that Amex (as It was commonly regarded) became popular. Perhaps too popular. So the Company invoked the Gold Amex. The multitudes shrank in awe. Who could ever become worthy to receive the Invitation. It offered prestige coupled with No Limit.

Time passed. Gold Amex prospered.

Having gone forth and multiplied, the clever wizards at The Company consulted the auguries, divining their future. "Platinum" was their response.

So the Company issued invitations to the fairest in the land. No Limit of the highest repute.

The Company had righteously neglected the credit card until this time. But sinful pleasures become irresistible. "Charge Interest" became a mantra among the wizards seeking additional revenue streams.

The wizards created Blue Amex. The Company formed unholy unions with the likes of Aussie. Their Blue issue went out among those who thought themselves "saved". Many folk see Blue Amex as the illegitimate offspring of a mid-life crisis -- the wizards' hubris.

Now it is whispered among the purest that another Amex exists. So secret, so private that It carries no mark, has no name. Those in the know call It... Black Amex.

No Limit, of course, with grandeur.

Dreamspinner
 
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A history of Amex (somewhat abridged)

Reply: 4.1.1.1.1.1
From: Dave :)


hehe...well done.

Dreamspinner, that was brilliant!
...your kids must love you.

Cheers,

Dave
:)
 
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A history of Amex (somewhat abridged)

Reply: 4.1.1.1.1.2
From: Owen .


Thanks for the story Uncle Paul. It was "verily" good...
 
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A history of Amex (somewhat abridged)

Reply: 4.1.1.1.1.3
From: Robert Forward


No wonder your known as Dreamspinner.


It's time for bed now after that good night story.

Goodnight

Robert
 
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Reply: 4.1.1.2
From: Rolf Latham


Amex green, platimun or gold os charge card


Blue is credit card

ta

Rolf
 
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Reply: 4.1.1.1.2
From: Rolf Latham


Hiya Owen

this is where the real banking money is being made today. From card fees, not mortgages

tA

Rolf
 
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A history of Amex (somewhat abridged)

Reply: 4.1.1.1.1.3.1
From: Rolf Latham


AWWWW

PLEASE peeople, Paul publishes kiddie books as a sideline :eek:)

What about the money laundering Paul ?


Rolf
 
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Reply: 4.1.1.2.1
From: Donna Larcos


After years of maxing out my credit card
limits (with which I could have bought a
small rural cottage) because my husband
insisted on being a perennial student and
I was paranoid, I recently cancelled all but
one for $10,000. In exchange for
cancelling $58,000 worth of credit and
overdrafts I was given equity and home
loans to the value of $135,000. So yes,
credit cards do affect serviceability. If you
lock loans in for three to five years you
can also argue against their mandatory
"we'll just bung on 2% to see if you can
still afford it" rubbish.

D
 
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