Special Briefing: Didn't get the credit limit you want – DON'T ‘screw them!'
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Take a look at the e-mail below. To me it's a nightmare, but unfortunately a common one. The mistake is massive, so I've decided to write a special briefing on it….
See if you can work out what's wrong? (details changed to protect anonymity)
“Hi Martin, I've an outstanding balance of $5,000 on a credit card with Costly Bank and I tried to shift it to Nicecheap Bank with its 0% nine months on balance transfers without a fee, as you suggested.
I applied online, told them I wanted an interest-free balance transfer of $6k and gave them the card number as requested. I got accepted ok, but with a miserable credit limit of $3k so no possibility of a transfer. I've told them what to do with their card!”
I completely understand the sentiment. After all, this website's motto is “a company's job is to screw us all for profits, and our job is to stop them – and, if possible, to screw them back”. Unfortunately in this case screwing them back is, to mix my metaphors, biting off your nose to spite your face.
Follow the rules below to find out why and to ensure you don't make the same mistake in future.
RULE 1: Understand how they decide to lend you money
RULE 2: Pick the right card
RULE 3: What to do if they don't give you as much as you need
RULE 4: Why you should never throw it back in their faces
RULE 1: Understand how they decide to lend you money
When you apply, and are credit scored, you're judged against the bank's wish list for a profitable customer (see my Credit Rating article). The more profitable you seem to be, the more likely you are to be accepted and given a larger credit limit. Remember I say profitable customer and not good credit risk.
Of course, if you're a bad risk then you're not profitable anyway; however even if you pose little risk, there are other factors that the bank will consider such as, among others:
- Outstanding debts – On other cards, loans, overdrafts etc.
- Available credit – This is the amount of debt that 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, making repayments.
- Scoring out ‘players' – Though it's difficult to do, banks will score out people it sees to be playing the system.
Always remember, a bank's job is to make money from you, not to serve you, so you don't have a right to be lent money by anyone. Getting annoyed if they don't lend you any or enough isn't going to do any good. Make sure you run through all the checks to ensure they're judging you on the right information, see the credit scoring article for details.
RULE 2: Pick the right card
This is notoriously difficult, as there is no simple, hard and fast rule saying who is better. If you go to my Balance Transfer article you will see, in the table, an assessment at how good each of the top cards are when it comes to giving you a decent credit limit.
Yet the table isn't definitive, no card company publishes its criteria for credit scoring, or credit limits, so it's especially tricky to assess. The ratings in the balance transfer article are based on the mountains of feedback available on the Chat Forum boards from those who've applied.
It's also worth remembering, that 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 but you may (and if you don't initially the usual 'review' period is three months, so call again)
RULE 3: What to do what if they don't give you as much as you need
The e-mailer only received half of what they needed. Actually, that's not such a bad start. $6,000 is quite a high credit limit and means they already have sizeable outstanding debts.
Thus the first action should be to transfer as much as possible of the money across to this 0% rate. That way, at least half of the money will be at the cheap rate, and you'll be saving money instantly.
There is 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.
Do note however, the highest number of consecutive card applications you should make is three - more than that could seriously damage your credit score, as lenders will assess this as potential over-borrowing.
RULE 4: Why you should never throw it back in their faces
It's a bit like punching a brick wall; you'll feel the pain more than it.
Firstly, because you're now stuck with your old poor card, you'll need to apply for another new credit card and that can take a long time, and will cost you in the meantime. More importantly though, every time you apply for a new credit card, especially in a short time period, it adds a search to your credit reference file.
If your score deteriorates, this will cause each successive application to yield lower and lower relative credit limits (by ‘relative', I mean compared to what you would have got had you not made a prior application to that specific card).
This in turn deteriorates your credit score and means with each successive application you've less chance of getting the credit limit you need.
And as you've already made one application (for the card with the unsatisfactory limit), the credit search is now on your file whether you use it or not. Therefore, by not utilising the card after you've been accepted, your credit score won't magically rekindle itself.
On the contrary, it just means you've thrown away some cheap available credit, and eroded some 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.
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