Reducing Your Credit Limit: Is It A Good or Bad Idea?

Information verified correct on September 23rd, 2016

Is It Wise to Reduce Your Credit Limit?

If you’ve been working diligently to reduce your credit card balance, you might find that having that available amount to spend is pushing the limits of temptation. Rather than give in and start the debt cycle all over again, you might consider reducing your credit limit too.

Not only does this remove the temptation to pay for more purchases and get right back into your normal habit of credit card spending, but it also helps to stop you from reaching such a high level of debt again in future.

As you pay down more of your outstanding debt, you have the option of reducing your credit limit further, or you might decide to leave a little available to cover any emergencies that could arise.

Other Ways Lowering Your Credit Limit Can Help You

Asking your bank for a lower credit limit won’t damage your credit rating in the slightest. The Australian credit reporting system isn’t reliant on knowing how much credit you have, how much you owe, or what your balances might be. This means that reducing your credit limit won’t have any effect on your credit rating at all.

Having a lower credit limit can also help you to qualify for slightly better borrowing capacity when applying for a mortgage. Home loan assessors calculate the amount you can afford to borrow for a mortgage by checking out your level of available credit. They take your credit limit and factor a payment of around 3% of that limit that is then deducted from your income amount. Then they’ll work out how much of your income is remaining to pay for mortgage repayments. With a lower limit, this leaves you with more of your own income remaining to pay your home loan.

If you’ve often had trouble keeping track of your credit card spending, asking your bank to lower your credit limit can also make it easier for you to spend less using credit. It may also become a good incentive for you to start saving more instead of spending your income on credit card repayments.

Once you’ve managed to repay your credit card balance off entirely, you might still opt to maintain a reasonable credit limit on your credit card. Just be very aware that you don’t want to get back into the debt trap and begin the cycle of repaying your expenditure over years once again.

Use your credit card wisely, keep track of your credit card spending, and consider whether having such a high credit limit is working for your financial situation or not. If you’ve only ever known problems and expensive interest bills from having a credit card with a large available limit, reducing that limit will only help to strengthen your financial situation in the long run.

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4 Responses to Reducing Your Credit Limit: Is It A Good or Bad Idea?

  1. Default Gravatar
    Paul | February 17, 2016

    Does it increase my credit score on websites like to decrease my limit on my current cards?

    I read somewhere that they consider your current available credit limit when determining if you are able to get a new card and the more credit you can already access to worse off they rate you.

    Can you clarify?

    • Staff
      Sally | February 19, 2016

      Hi Paul,

      Thanks for your question.

      The impact that decreasing or increasing your credit limit will have on your credit score will depend on your credit history and ability to repay.

      If you’re struggling to repay your balance, reducing your credit limit to curb your temptation to spend more could help. So long as you’re able to make timely repayments and demonstrate that you’re a low risk applicant, reducing your credit limit could help improve your score.

      For more tips on improving your credit score, please see our guide.

      I hope this has helped.



  2. Default Gravatar
    Phil | February 16, 2012

    Hi, How do I go about reducing my credit limit on current credit card? Have tried via websites but can’t find how !! Do I need to go into a Westpac branch? Comments appreciated. Thanks Phil

    • Staff
      Jeremy | March 2, 2012

      Hi Phil,

      Please contact your financial institution by phone or in person.


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Rates last updated September 23rd, 2016
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1% p.a. for 12 months (reverts to 13.24% p.a.) 0% p.a. for 18 months $55 p.a. Go to site More info
HSBC Platinum Credit Card
Receive a full annual fee refund and save $149 if you meet the $6,000 spend requirement. Enjoy a balance transfer offer and platinum card benefits such as complimentary insurances and concierge services.
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* The credit card offers compared on this page are chosen from a range of credit cards has access to track details from and is not representative of all the products available in the market. Products are displayed in no particular order or ranking. The use of terms 'Best' and 'Top' are not product ratings and are subject to our disclaimer. You should consider seeking independent financial advice and consider your own personal financial circumstances when comparing cards.

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