You want to do a balance transfer, you apply for a new credit card and get it. Great news. But then you see that your credit limit's too low and you can't shift all the debt you want to.
But don't cut up or cancel the card just to spite the bank. It's likely to hurt you more than them. If you've been disappointed with your credit limit when applying to shift debts, earn cashback or more, this quick guide will show you how to deal with it.
This is for NEW cards. For dealing with old ones, read Cancel Unused Credit Cards?
Take a look at the email below - it's typical of the type that lands in our inbox all the time, especially since the credit crunch. (Personal info has been changed to protect ID.)
What a load of Barstools!
Sent: A while ago
Hi, I've an outstanding balance of £3,000 on a credit card with Suntanner Bank and I tried to shift it to Barstools Bank's 0% for 15 months deal for a 2% fee.
I applied online, told them I wanted an interest-free balance transfer of £3,000 and gave them the card number as requested. I got accepted OK, but with a miserable credit limit of £1,500 so no possibility of a transfer. I've told them what to do with their card!
Why do they give such low credit limits?
When you apply for any product, each lender scores you differently depending on its own wish list of what makes a profitable customer. It's important to emphasise that this is about profit and not just risk.
Of course, if you're a bad risk then you're unlikely to be profitable. However, even if you pose little risk, there are other factors the bank will consider, including...
Outstanding debts. On other cards, loans, overdrafts, etc.
Available credit. This is the amount of debt you could potentially have if you used all credit available to you - even if you're not currently borrowing anything.
Repayment history. Whether you've ever missed or been late in making repayments.
Scoring out 'players'. Though it's difficult to do, banks will score out people they regard to be playing the system.
All these play a part. But it's also important to remember that as a whole, credit scoring has tightened up and credit limits have been reduced since the credit crunch. This is both due to the economic situation and political pressure for 'responsible lending' (though it's ironic that 'responsible lending' can lead to some people being unable to cut the cost of existing debts).
This means in general, credit limits are lower and it's more difficult to get accepted than a few years ago.
Full information, including tips on how to boost your credit score are in the Credit Rating guide.
How do I pick a card for the max credit limit?
Unfortunately, it's incredibly difficult to work out which credit cards will give any individual the best limit, as credit scores are bespoke for each organisation and individual.
To make it worse, the cards that tend to be easier to get accepted for often give lower credit limits as a matter of course. Those with higher limits are tougher to get, so there's a balance between the chance of acceptability and the limit.
In our best buy guides on Balance Transfers, 0% Spending Cards, and Cashback Cards, we try to give an indication of the likelihood of acceptance and what credit limits are like, when the information is available.
If you have particular concerns about acceptability, most of our credit card pages now have an 'eligibility checker' where you can check your likelihood of getting a credit card before applying for it. This uses a 'soft search' of your credit file, which importantly doesn't leave a mark (so it won't hit future applications).
Can I ask it to increase my limit?
If you're not happy, there's nothing wrong with telling the card company that, and asking for a higher limit. Of course, it doesn't mean you'll get it.
You will usually have a better chance of getting the limit increased after you've had the card for a reasonable length of time. The initial 'review' period is often around three to six months.
The only problem with this is some 0% balance transfer deals require you to shift the debt within the first 60 or 90 days or so to be eligible to get the 0% deal, so it may be too late for that. Don't assume you can simply shift debt across and still get the cheap rate once the credit limit is increased - always check.
However if you want a limit increase to borrow more, question whether you really need it. If card companies aren't willing to lend, it should be taken as a warning that it may not be affordable.
Also, if you have any savings put aside, it is likely to be worth paying down debts with these, so the limit you need is lower - read the Debts vs Savings guide.
What's wrong with just cancelling the card?
It's a bit like punching a brick wall. You'll feel the pain more than it will. There are two reasons for this...
It's already had an impact on your credit score
Every time you apply for a new credit card, especially in a short time period, it adds a search to your credit reference file. These searches usually have a minor negative impact on your score the next time you apply for new credit.
The fact you have the card means you have another line of credit available to you, and that too is likely to diminish your ability to get other credit. Even if you cancel the card, and not just cut it up, that is a process which takes time.
Put a little less technically, your credit score has already paid for the card. It won't magically rekindle if you don't use it.
You'll need to apply for a new one anyway
This will take time, so you'll be missing out on any benefit in the meantime. Also, we assume you chose the card because it was the right one for you - so while you may have less function with it than you'd hoped, can it still be used for something?
Getting rid of the card just means you've thrown away some cheap available credit, and eroded a little of your ability to get further cheap available credit. So even though it's always nice to tell the bank where to stick it, sometimes you may just find you're the one who is stuck.
What should I do with the low limit card?
Certainly if you got it to shift debt to (do a balance transfer) and it's cheaper than the cards you've currently got, shift the debt to it up to the maximum allowed.
Going back to the email that prompted this...
"I applied online, told them I wanted an interest-free balance transfer of £3,000 and gave them the card number as requested. I got accepted OK, but with a miserable credit limit of £1,500 so no possibility of a transfer. I've told them what to do with their card!"
In this case, assuming the £3,000 is currently at a high rate of 18% a year, at least shifting half the debt will save you over £200 in interest over the next year. That's not a bad start - and you'll start saving instantly.
Plus, there's no rule that says you must balance transfer only to one card. If you have more debts to move, simply apply for another card (the second best on the market) and move the rest there. The only negative means you have a couple of cards rather than just one, which may be a little more complex, and can affect your total minimum repayments.
Do beware of over-borrowing though, and it's always worth checking your credit files before applying again to ensure the low credit limit wasn't due to an error on them.