Recently there was an article from Sky News where 6 million people in the U.K. have had their credit limit increased by lenders without their consent. Further to news, the lenders were raising the credit card limits without looking at those that could not afford it or who were heavily in debt. This is very disturbing as it is further causing people to go further into debt and not helping to find strategic solutions to the credit crisis. If this is happening in the UK, then how many other countries is this practice happening? Certainly there should be rules in place put onto the lenders with regards to credit limit increases and provide it to those that can afford it as well as contacting the card holder. It should be up to the card holder to decide to increase their credit limit or not.
When it comes to credit limits, the most important thing to know is that it should not be more than one’s disposable income. Credit limits should not even be equal to one’s disposable income. The reason for this would be to not fall into the trap of paying back more than you have. In fact, it is better to lower your credit limit if you are not using the extra room or to use discipline when it comes to using the credit source. This will lower the amount of debt one can be in. I was once offered a pre-approval of a line of credit from a bank and I went through the application process. I did have other lines of credit as well as credit cards. As soon as it came to go through and sending the application, I had a friendly and serious discussion with the personnel through the phone who told me about my current debt to income ratio and what I had from looking at my credit history. Even though I was looking to open the line of credit for debt consolidation, I ended up making the wise choice and not go through the application. Not only would my total credit limit increase but the chance of further indebtedness did exist. One thing to point out was that I was pre-approved but I had the choice to take it or not. Another example was a pre-approval of a credit limit increase on a credit card I had but I had to call in order to have the credit limit increased; the credit card company did not increase the credit limit without my knowledge. This is how I believed credit companies worked until I heard Sky News article above.
When looking at your finances, pay specific attention to your credit sources and check if any credit cards that you have have the same credit limits. If you do notice that the credit limit has been increased without your knowledge or consent then you should let the lender know right away. A few things to inquire is if the credit limit increase meets your disposable income (i.e. is it within your means and below your disposable income?). Do you really need the extra credit limit if your credit limit is below your disposable income? You should think about avoiding debt and limiting your credit usage to use it only when necessary then paying it back. First and foremost, when calculating your disposable and household income, find out all the necessary expenses to find out what income is left over. After finding out the left over income there will need to be calculations of monthly payments of debt, if any, which will then come up with the absolute left over income. Ideally there should be an amount that would go to places such as savings, retirement, life insurance and sources important for the well being of one or a family. After this there should still be left over income to be financially stable. With this all said, there should not be a reason to have a credit limit increase but a decrease. Take for example the debt payments, if those are paid off then the disposable income will increase and there should definitely be an action plan to decrease the credit limit to a reasonable amount. We will need in our life time a credit source but managed efficiently, effectively and responsibly. This is doable and will require certain sacrifices.
We have to take out of this article that credit card companies are increasing the limit automatically and should; therefore, always check our statements and see what the limit is. Credit limits should only be increased with our knowledge and consent. We as a human species have that uncontrolled urge to want things that we find attractive or to impress others; this is a psychological fact. Lenders work on that human psychology to get people to spend and use the credit for their gains. It is fine to spend using credit sources but always be responsible and keep within your financial means. If you are given a pre-approval of a credit limit increase then analyze your current situation carefully before accepting it. The best case is to not need any credit limit increase and budget yourself within your disposable income. Find ways to keep your total credit limit to be below your disposable income. There is help and we can learn from each other thanks to the social media revolution.
I would like to hear from anyone who noticed that their credit limit increased without their consent and what actions they took. As the article where I heard this was from SkyNews based in the U.K., it would be interesting to see if this practice has been used in other countries.