Credit card limits

June 2nd, 2014 at 12:00 pm by David Farrar

Stuff reports:

The total amount of credit card limits has topped $20 billion for the first time, and that does not surprise one retiree from West Auckland whose bank has offered to lift his limit by $19,500.

Gary Osborne, a retiree who owns two rental properties, didn’t ask for the increase offered in a letter by his bank, ANZ.

His limit hasn’t been automatically lifted, but a coupon was attached to the letter which he had only to send back for his limit to rise from $26,500 to $46,000. The letter said that as a valued customer, the new, higher limit had been “pre-approved”.

Osborne won’t be accepting the higher limit, calling it a “ridiculous” sum, and saying he has not need for it.

So he should say no.

today won’t increase your credit card limit without your authorisation. This wasn’t always the case.

When I was at university and exceeded my credit card limit, the bank would decline further charges until it was paid off.

Once I was working, then whenever I exceeded my credit card limit the the bank would send me a letter saying you obviously need a higher limit and raised it.

They never asked me if I wanted a higher limit and over the years it went from $1,500 to $15,000.

A few years ago they agreed to stop this, and now just offer you a higher limit – which is fine.

Of course the banks want people to borrow more. But they also don’t want people unable to pay their debts off, so they do profile who to offer higher limits to. Again, you can always say no.

You can also do what I do, and highly recommend. Set up a direct debit to pay off your credit cards on the due date. That way you get up to 55 days free credit and never pay a cent in interest. Of course you need to have enough funds to be able to pay your bills off in full – but if you can’t – then might be better to get a personal loan than pay credit card interest rates.

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19 Responses to “Credit card limits”

  1. Mrs Trellis (34 comments) says:

    Who the fuck is Gary Osborne, and why is this news?

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  2. Judith (7,643 comments) says:

    IT is unbelievable the amount Credit Card agencies are prepared to offer. We often receive offers for CC from places we have never even dealt with. Including three banks offering my 18 year old tertiary student son, a $5,000 CC limit. Fortunately he listened to his very very wise mother :P and said no thanks. The temptation for those who are not all that astute is ridiculous, but I guess the banks make their money, or else they wouldn’t be doing it.

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  3. MT_Tinman (2,993 comments) says:

    I don’t run a credit card.

    I run a debit card for on-line buying and pay cash for everything else (personal spending). That makes sense to me.

    Most people should do the same (or similar) but the banks offering credit is simply what banks do – a non-story at best.

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  4. kowtow (7,644 comments) says:

    Once upon a time it was the bank managers’ job to deny you a loan or going into debt for fripperies.

    Now it’s his job to encourage debt.

    That in two sentences is how the GFC got so big.

    Govt’s do the same thing,borrow to provide “services” that can never be paid for.

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  5. redqueen (457 comments) says:

    Again, why is this news?

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  6. Michael (896 comments) says:

    As David points out, if you pay off your bill every month then a credit card is a great tool for managing expenses. If you can’t keep to that commitment then you’ll pay the high interest rates you know about. You can use cards to buy a consumer durable – like a new TV or bike – and pay it off over three or four months and it will be cheaper than hire purchase which typically has high fees and even higher interest rates.

    The reason the credit card interest rates are so high is actually due to the high limits everyone has, but doesn’t use. The banks need to keep enough capital in place in case there is a sudden surge in spending, capital that isn’t very productive. So, to offset this you get the high interest rates.

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  7. gump (1,488 comments) says:

    Given the interest rates and fee income from the transactions, I’m not surprised that lenders want to encourage people to accumulate credit card debt.

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  8. Odakyu-sen (441 comments) says:

    Gold is the money of kings.

    Silver is the money of gentlemen.

    Barter is the money of peasants.

    Debt is the money of slaves.

    (quote by Norm Franz)

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  9. rouppe (916 comments) says:

    then might be better to get a personal loan than pay credit card interest rates.

    You forgot to mention “and stop buying stuff you can’t afford”

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  10. calendar girl (1,175 comments) says:

    When you apply for a mortgage, and are asked to provide a personal balance sheet as part of the information required, those same banks insist that that higher credit card limit that they have offered is included in full as an element of your debt profile. This applies even where you can show a history of rare use of the card and / or regular monthly repayments in full.

    In makes sense from the banks’ perspective, but many newcomers to the property market know nothing about it until, on making an application for a mortgage, they are confronted with having $15 or $20k more “debt” than they thought they had.

    Just another trap for the unwary. There is always a cost (or a potential cost) to be paid for having a bank debt facility. Banks do not offer higher credit as an act of kindness; rather, they take calculated risks to increase the size of their loan book.

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  11. dime (9,464 comments) says:

    Dime has a limit of 500 bucks. Whenever the bank tries to upgrade me and i say no, its like the person asking cant understand that i wouldnt want a gold card.

    Apart from when buying houses, the maxill spend using OPM is the $500 on credit. havent had an HP since about 98.

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  12. Judith (7,643 comments) says:

    @ calendar girl (1,142 comments) says:
    June 2nd, 2014 at 2:26 pm

    That’s exactly what it is, a huge trap, and one so easy to fall into. As if taking on a mortgage is not enough – it’s almost like they are setting them up to fail.

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  13. Mrs Trellis (34 comments) says:

    Found him……

    http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=10825904

    Likes his photo in the paper…..

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  14. Manolo (13,386 comments) says:

    What news is this? WTF? WTF?

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  15. m@tt (588 comments) says:

    “But they also don’t want people unable to pay their debts off”
    Are you being naive or misleading? A managed level of bad debt is good for the banks books, or any finance company for that matter.

    If someone cant pay their debt the equation for the company is very very simple; wait until the accrued interest exceeds the difference between the original debt and what they can sell the bad debt for to a debt collector. After that they have a profit, they are rid of the problem, and the debt collector gets to chase the debt, charging the debtor for their costs.

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  16. Grendel (957 comments) says:

    Agreed that this is not news, its been either since the GFC or since the financial advisers act was passed that the banks started having opt in to increases rather than the previous opt out.

    i am also in the camp of visa debit only (so i can buy online), and try to get my clients to switch to that as well (once the existing credit cards are paid off).

    Calendar girl, you are not 100% wrong, but not really correct either.

    the way the banks look at your credit cards is as thus:

    1. they will take limit and apply a percentage of that as a monthly expense, usually 3 or 5%, so a $10 000 limit will add $300 – $500 to your monthly expenses that are used to check if the loan stacks up.

    2. some lenders (used to be all), will count the expense as $0 per month if you can show you pay the card off every month and can show this for at least 3 months on statements.

    3. if you keep a balance much lower than the actual limit, and its consistent (as per 2), then they may use the lower level for the expense.

    4. if the only reason the loan fails is due to the credit card expense, a good adviser can usually get them to let it through anyway.

    5. you can always just drop your limit as part of your application if you dont use the full limit. even my more useless competitors will remember to look at this for their clients.

    cancelling your cards completely is sometimes actually worse than having a tiny limit, as the banks just dont trust that you cannot walk out and get a new card the day after you buy the house (possibly even from one of their own staff trying to
    make their monthly target).

    the lesson here is use a really good mortgage adviser, and get the actual info on all this and have your best position presented with your loan application.

    also be careful of the 55 days free interest thing, its not that simple anymore, and if you miss it, they can calculate the interest from purchase date rather than from statement date.

    i would not get a personal loan to clear a credit card, i would get a balance transfer card at 1%, keep paying the same as the original interest costs, but make sure that i lower the limit every time i make a payment. you can do that over the phone, they dont like it, but tough. its what i am doing with some of the new clients i have with stacks of consumer debt ($40 000 is the average, with $70-120K not uncommon).

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  17. Tauhei Notts (1,609 comments) says:

    The interest rates on credit card debt are scandalous. Usurious! Those usurers are in my mind much much worse than the carbon dioxide pirates that the Greens wish to attack.
    Declaration of interest; the company I have a significant interest in has a wood fired boiler to fuel six timber kilns.

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  18. Colville (2,082 comments) says:

    I have a platinum VISA, $50K limit.
    Go overseas and need a good Dr?, hand over the VISA and get it done.

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  19. Colville (2,082 comments) says:

    If the Russian Mafia steals your debit card info its your money they are nicking.
    If they crack/hack/copy your VISA info and empty it its not your money!

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