Ask Money

Is a lower credit limit okay?

Chris Farrell Oct 14, 2010

Question: I realize that you’ve answered similar questions, and have read your answers. But I’m curious as to my specific case. I have a credit card that I have had for 12 years that has a very high ($15k) limit. It also has very high interest fees, so I don’t carry any debt on that card. I have two other cards with $4K and $8K limits (I carry the occasional balance, but am generally responsible), so closing this one would reduce my available credit by more than half. The card also charges a $20 yearly fee, which rankles me to pay just for carrying the credit that I’ll never use.

Does your usual “close it if you don’t have a big purchase coming up” answer still apply to a card with such a big limit? Thanks! Tossy, Northfield, VT

Answer: Yes, my answer remains the same. But to get to the heart of your specific twist, the real question is do you need that big a credit limit? You currently have a total credit limit of $27,000, a figure that would drop down to $12,000 if you get rid of the high interest rate (and fee) card. Are there good reasons to have that amount of money available to you?

For example, some people have to use their personal card to pay for company travel and then get reimbursed for expenses. They often find it smart to have a large limit.

So, if the answer is yes, the $20 annual fee and the interest rate are worth it. But if you don’t need more than a $12,000 limit, why not cancel the card? You don’t use it. Yes, your credit score will take a short-term hit, but this is about taking control of your finances rather than following the dictates of the credit card/credit score business model. And your score will improve as you keep on paying your bills on time.

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