How Do Credit Limits Work? Gambler Family Member with $30k CC Limit but 30k Income

Just wanted to get some thoughts/ info on how credit limits work.

I have a family member who has a gambling addiction and we recently found out they have been withdrawing from a credit card which now has a balance of $30k. Thing is their annual income is only about $30,000. I then looked at past statements and the limit started at around $5000 in 2013 and its slowly grew to $30,000 today.

How do credit card limits work? They've been paying the minimum balance but I don't understand how they they could offering credit limits to be increased when they're only on about $30k pa on wages?

Comments

    • +36

      No need to respect dumb choices.
      I can respect people's freedoms to make poor choices, but absolutely condemn bad choices (and they have the right to disagree with me).

      • +1

        I don't think there is a need to condemn or berate such bad choices. It is such clientele that make it possible for clientele on the other spectrum to exist. I'm talking about a shrewd customer who uses only fee free cards, clears the balance at the end of every month without fail and takes advantage of points.

        • "makes it possible"? Perhaps, but at the expense of all of us.

          Certainly with some caught out by such practices, you and many others can save a few dollars- the same amount less many multiples that go to the corporation conducting 'its practice'

          But all this pails in significance to the costs borne by the state, the taxpayers, the next generations, the planet, etc. from the social destruction that plagues our society. Sure humans make bad choice after bad choice, but corporations (as well as individuals) have a duty to help others when they fail- not take advantage of it.

        • -2

          @zerovelocity:

          No they don't have that duty, otherwise gambling, alcohol, cigarettes, fatty foods and likely pornography would be banned.

          Humans like vices, society in general has grown to accept the pleasures and costs of such vices. The individual is responsible for the extent they indulge in such vices.

        • @zerovelocity: I was gonna says what @tsunamisurfer said, in a secular capitalism society … sadly NO

        • @tsunamisurfer: The law does not define what is right and wrong.

          But regardless, in many societies these things (and many other detrimental activities) are banned. But banning something is seldom the best way to address the problems caused.

          It is the environment and regulation that society curates and develops for itself, as well as the rules and regulations which follow the impacts, rather than keep pace with them.

          The impact of that is bad enough without adding apathy and ambivalence. The OP OTOH seems to care about his/her dad, if noone else give a s41t, it's no good.

          Some corporations may not have that duty, but most have stated aims that claim to- and the Banks certainly do have obligations to the community in this and many areas- not just in how they lend.

    • +8

      Oh yea coz we all believe banks do the right thing by us by not over leveraging us for our own sake right? What a load of crap.

      Banks made their money selling debt, the higher the interest debt the better. Hopefully the royal commission into this will reveal a little something, I have a feeling this would be a good story to submit.

      • +2

        The banks are doing what they're meant to do. To make money.

        The only person at fault here is the addict.

        • +2

          This is true dunno why its down voted.

          If the person is asking for higher limits and providing things like "Family will support me" and stuff like that as well as making min repayments.. In what sense can the bank refuse.

          This is a situation where banks are damned if you do damned if you don't.

          If you increase, people blame the addiction/over spending on the bank

          If you don't increase, people go up in arms saying the bank wont do something for them complaining to Financial ombudsman and will still get the limit increase…

        • +1

          To people who down voted whooah1979, banks generally are not not a charity in Australia, they're a for-profit business.

          Take care

        • +1

          @ssyl9: I’ve never seen a report of someone complaining to the financial ombudsman that they weren’t offered a credit limit increase & the ombudsman forcing a bank to offer it.

          I’m 99% sure it doesn’t work that way but if you have a reference I’m happy to be proven wrong.

      • +1

        I don't believe in irresponsible lending, only irresponsible borrowing.

        • Even subprime loans to less educated, lower socioeconomic groups such as NINJAs?

        • @ihbh: Even NINJAs can recognise their inability to repay a loan.

        • +4

          Do you believe there are no irresponsible casinos? Just irresponsible gamblers?

          Or no irresponsible pubs, just irresponsible drinkers?

          Anything that is addictive, and yes, getting offered money today is addictive, needs responsibility from all parties to do the right thing.

        • +5

          @cloudy:

          At the end of the day, the individual is responsible for the oneself.

          It is up to me to determine whether a loan is right for me, whether I can pay it back and how much interest I end up paying. The bank’s job is to determine whether they can make money out of this exposure and in a case of delinquency, whether they can claw back losses.

          It is up to me to determine whether a gamble is an acceptable risk to me, whether the payoff is worth the risk and if I can afford to lose that money. If I choose to play, its on me 100%.

        • +1

          @tsunamisurfer:

          However, we live in a society and a society looks after its members.

          Looking after those with addictions also helps the society as it creates less problems for it in the long run.

        • +1

          @tsunamisurfer: wouldn't be that easy to understand for people who are in the middle of it.

          That's why the government wants businesses to control it through responsible lending and responsible alcohol serving etc etc.

          This world is full of people who cannot manage things themselves.

      • +6

        Yes, banks make money selling debt … but only on debt that is repaid. Banks have no interest in providing debt to people that can't pay it back.

        I'll tell you that for every person who complains that a bank has given them money they can't repay, there's another that the bank won't lend money to because it doesn't fit some rigid lending criteria to even though there is clearly the ability to repay.

        This Royal Commission should be looking at these instances as well as those where borrowers simply get in over their heads.

        • It is true that bad debts won’t lead to profits, but to lend someone a small amount of money that is unaffordable to the person which can give you the option to one day take to possession of everything that person owes is a good long tail option.

          And trust me that is calculated. Everyone has some assets, some valuable but not liquid until in bankruptcy

        • @cloudy:
          They're a gambling addict on $30k p/a, I doubt unless they hit a Big6 on cup day they'll they'd have much for the bank to take…

        • -1

          @linton:

          no judgement there hey? And yea, I'm sure thats why the bank lent him 30k right?

          clap clap for the deep thoughts.

        • @cloudy:

          $30k cc debit from a gambling habit and still hasn't sought help?
          He's trying to dig himself out and only a matter of time until whatever collateral he has against the card belongs to someone elses.
          That's if the card credit limit has been offered over time just banking on his good 'no default' record, or even if the increased limits were requested by him.

          Kill the addiction and the money troubles will be a hell of a lot easier and probably manageable.

          Sure there's judgement. The old man put himself in the position and needs to be judged, but thats part of the way back.

          So it's the banks fault for lending, bookies/casino for taking bets, everyone but the 'victim' here?

        • @linton:

          He's trying to dig himself out and only a matter of time until whatever collateral he has against the card belongs to someone elses.

          Credit cards are unsecured debts. If he's declared bankrupt, they get sod all and they know it.

          What will happen is that after a certain period of repayment problems the bank will sell that debt on to a debt recovery company for a fraction of it's value and they will try to recover the debt. If he offered to repay a fraction of the debt in one go, say $10k, then there's a strong chance they'd accept that as it would still leave them making a profit on the debt they bought.

        • If it's only that simple Sera. Banks justify high risk lending with higher interest rate, fees, etc.

          Risk return reward mate, people win awards for talking stuff like that, I don't blame yah ;)

    • +2

      Is that you Tom Waterhouse?

  • +2

    You would think the pattern of withdrawals would be ringing alarm bells with the company. Is the family member responsible enough to realise they have a problem and want to do something about it, if so then he/she should contact the company that issued the card and see what they can do about a repayment plan. I presume he/she couldn't transfer this to a 0% interest account for 12 months.

    Hope this link might help
    https://www.moneysmart.gov.au/managing-your-money/managing-d…

    What a damn mess this person has got themselves into.

  • -6

    If you pay the minimum you will get invites to increase the limit.
    If you pay a lot over the minimum you won’t get anything
    If you pay it all each month you won’t get anything either

    • Do you have a source please tuzli? Interesting stuff because I pay mine in full every month and have had no increases.

      • +6

        Common sense…

        Why would the bank want to increase your limit if you pay it off always?
        They make no money from you.

        • Well, that makes perfect sense. I'd imagine they have an algorithm as well, what do you reckon?

        • +24

          @volcanoeqcycle: i always pay on time never pay 1 cent interest but they still send me invitation to increase.

        • +3

          Don't agree totally, the banks make monies via merchant fees as well, if you have a higher limit, you may buy more things monthly.

          I think the original intention of credit cards is to ease purchase by buyers, banks make their monies via merchant fees while the merchant can sell more products as card holders buys more as it is so easy to spend money on plastic. Banks later discovers that late payment fees and interest charge on unpaid amount is a big earners and from then on, they always try to get card holders to apply for more credit.

        • Well, that isn’t entirely true. I have worked on some business logic around credit card payments in one of the Big 4 and they send credit card limit increases to two potential types of customers.

          1) Ones who pay on time regardless of whatever the amount is, on time every time.
          2) Ones who pay up late including credit card fees and interest. And mind you, this is the target group Banks want to increase the margins.

          They exclude the folks who don’t have a regular payback history (on-time or delayed)

          And all of this, depending on whether you have opted for future credit increases when you signed up for the card.

    • +13

      I pay in full each month and still get increase letters

      • +1

        me too

      • +2

        Ditto

      • yap, legally, it's every 6 months they can increase/you can ask for an increase.

      • same here even after i told them not to send invitation..

    • +3

      This is incorrect in my experience.

      I have the Citibank Signature (fee free for life), I have paid $0 interest since the day I joined that offer.

      I would receive about 2 calls a year saying I've been pre-approved for an increase (100% of my current limit) if I want. They will of course do their due diligence.

      I actually took up the offer once to buy a car, but then requested to go back to previous limit once done.

      • +3

        you found a dealer to take a CC payment that large?

        • +1

          He didn't say how much the car was

        • +1

          We buy new cars on company credit card all the time.

      • +1

        They will of course do their due diligence.

        lol

    • +2

      You're only allowed to get invites now if you opt-in to receiving them.

      As someone who has always paid on time, I can tell you they absolutely did give you limit increase invites when they were allowed (to the point that my limit is more than twice what I would ever spend in a month and more than 3x my monthly salary after tax). And then with the higher limit they waived the fees on the top level rewards card since I clearly only wanted to pay for the cheapest one. :)

      Didn't bother to opt into invites since they restricted them because I have no need for a higher limit, and actually decreased the limit so it would be easier to apply for other cards etc.

      They'll give you as much limit as they think you can 'ever' repay. With little concern for if you pay it back within the interest-free period or over 30+ years.

      • Yea they will start inviting you to increase your limit once you reach near your maximum credit limit.

      • You're only allowed to get invites now if you opt-in to receiving them.

        Yep, so now you get invitations to opt-in ;)

    • Incorrect

      I started off on a 2k credit
      Paid the full balance off each month

      And my limit went from

      2k 3k 6k 12k 25k 32k 65k

      And these were all credit limit increase invitations. And my income virtually didnt change. In fact it went down

      Limits offered are based on multiple factors ranging from anything you could think of. Even deoending on how much the company is profiting. Or trying to increase customer numbers

    • Ridiculously wrong. My old Citibank card started off with 30k limit, was always paid off and got increased up to $100k limit over the course of 5 years.

      Suncorp more recently is the same, started $20k, offers to $30k in just over 12 months.

      The increases are there to try and lure you into using the card, and eventually making interest off you. It’s a simple risk calculation based on usage, income, probability of spending etc.

      • Citibank sends me credit card increase letters all the time.

        However, the last few I had to affirm my income was above a certain amount.

        Although, I don’t think there was any checking.

    • My partner pays off his cc every month, only uses it to gain rewards points. Still gets offers every second month in the mail to increase his credit limit.

    • I pay in full each month, never pay interest in CCs. They keep giving me invitations to increase my limit. And I keep declining.

    • Purely anecdotal, but definitely not my experience of dealing with credit card companies. I used to pay pay off my credit card on a weekly basis and still received offers to increase my limit.

    • Rubbish. I have multiple credit cards amex * 2, amex bank issued * 2 (1 already closed and 1 closing next month though), visa * 2 pay them in full each month and regularly get credit limit increase offers.

    • Rubbish.

  • +8

    To be clear: This is actually my dad. So yes I am trying to fix this mess. Thinking either paying this in full for him or do a balance transfer for at least 12 months. The interest on it is crazy and I just need to clear it.

    Just thinking how crazy how he got increased to a 30k limit.

    • +2

      I know for a credit increase there is no credit check. For a balance transfer there is. May be worth checking his credit file first (Providing he wants this sorted).

      • +42

        I'm going to suggest if you pay this off for your dad he is just going to rack up the debt again. Work on his addiction first, and clearing debt second.

        • +2

          My Dad got into a similar position that dragged on for 10 years or more when I was in my teens. It's bloody tough OP. Addiction can be like walking in valley of darkness.

        • +2

          U might be right, but OPs dad is racking up, probably, 10-20% interest in the meantime, that’s crazy, if OP can balance transfer into zero interest for a year, or pay it off and have dad owe Op instead of a CC company that’s better.

        • +2

          @cloudy: Problem is that probably they won't increase the credit limit, so not paying it off means in 12 months time the debt could be $36,000. But if it is paid off, in 6 months time the total debt could be the original $30k plus another $30k of new gambling debt.

        • +1

          @cloudy: as long as op can trust his dad not to start again with another cc company. Might be worth letting his credit go south before paying it off, stop it from happening again.

        • @FunkyHoratio: OP needs to be careful. Sure, most fathers would be happy their children come to help them at a time of need, many would be grateful, thankful, ashamed and have a host of other feelings.

          Exactly how that translates into making the effort necessary to change one's ways (daily routines of the elderly can be immensely ingrained), is another thing altogether.

          Humans invariably do what (they think) is in their best interest. While it makes us flawed and predictable, it also makes gamblers, addicts, drinkers, especially those that do both, most subjective. They can convince themselves that what is in their best interest are the things that are actually most harmful. It is partly logic, but mostly twisted emotion- and children can injure themselves trying to help their parents get over the mental and physical impact of challenges and problems in the distant past.

          Not to mention how much it takes to change habits. The craving the mind has for its own self gratification through learned ways to achieve it (eg endorphins and other chemical stimulants generated by the body when doing certain activities, the most obvious of these being drugs, but also includes gambling, violence, extreme exercise, conflict, etc.)

      • It depends on the bank – many don't, but some do (e.g. ANZ).

      • I know for a credit increase there is no credit check. For a balance transfer there is. May be worth checking his credit file first (Providing he wants this sorted).

        For increases it depends on the Bank - for smaller increases they might not, but some banks will credit check on any increase. As one goes to a new credit provider for a balance transfer, the ne credit provider will check credit.

      • There is a credit check for credit limit increases.

    • +6

      Consider making a submission to the banking royal commission.
      It won't fix the current situation, but may contribute to preventing it recurring or happening to others.
      https://financialservices.royalcommission.gov.au/Pages/defau…

      • +10

        Well that escalated quickly. A customer received a credit card, demonstrates their ability to service the loan, bank offers them a credit increase, customer takes it, continues to demonstrate their ability to service the loan … and repeat.

        Explain to me how this is a matter for the Royal Commission (and the attendant implication of "evil bank") and not simply a matter of someone not managing their affairs as effectively as they could?

        • +2

          14.8m australians have super. we don't see them hanging their heads in shame when their super makes record returns because of the funds investment in bank shares.

        • +3

          It's like those sob stories on ACA "evil bank gave me a mortgage even though I had no job and couldn't afford it"…

        • +3

          @points4life:

          That because the borrowers lie through their teeth on the application.

          It's always someone else's fault.

        • +3

          Irresponsible lending to give someone 30k on a credit card when they earn 30k pa.

        • continues to demonstrate their ability to service the loan

          Minimum payments is hardly servicing the loan. I wonder how many years it would take to pay off that way.

          Also the bank would have noticed that all the transactions were cash advance / gambling… Does it really strike you as virtuous to lend someone their annual income when you know they have a gambling problem?

        • @bargdebarg:

          Don't think banks can have the ability to check every single income possible for every single customer.

          Bank will not know you only earn 30k, for all they know you can have other income else where in other banks or family support or both. It is not their fault if they cannot do detailed background check to the millions of customers they get.

          If a customer is paying min cred limit and ask for an increase, banks will give it to them assuming the customer is responsible based on their repayments of previous card debt.

    • +5

      You see, to have a good head on ur shoulders OP, doing either for ur dad is the right thing..

    • +9

      Why doesn't he do what rich people do- sign his property over to the wife then declare bankruptcy?

    • +8

      Don't pay it off for him.

      If he's as addicted to gambling as you are saying he'll just rack up another $30k.

    • +4

      Not great financial advice in this forum.

      Do whatever you can to replace the CC with a lower interest rate form of credit. Then cut up his cards.

      Personal loan possibly needing guarantor would drop interest to a fraction of what he’s paying now. 30k payoff on 30k income is basically impossible.

      Consider declaring bankruptcy depending on his assets and relationship status. It may be easier.

      And yes, complain to royal banking commission.

    • Paying it off is a great gesture.
      But you need to fix the problem or else it will be like throwing water on a fire

      • Gasoline?

    • I'm very sorry to hear about this. I have personally seen a former friend's life get destroyed by severe gambling addiction. It's as bad as a drug addiction. Hope your dad can get some help or counselling.

    • you gotta fix his addiction first.
      most of the them (not all) got suck into gambling because they don't know what to do with their spare time, maybe trying to find a healthy hobby for him?

    • Offer the bank a third of what is owed and see if they accept that. If not, it's a good negotiating position to start from. If your dad has had a record of late/low/no repayments then that will make them more likely to accept. A family friend got in to a similar problem with credit cards (different cause though) and ended up paying off somewhere between a third and a half of the full sum. That was largely down to engaging the assistance of my wife, she's not a financial advisor/counsellor, just someone who's bloody persistent. I know one thing she did was stress that the bank (CitiBank) knew that their customer was not in a position to support that level of debt yet they still increased their limit to silly levels.

    • Maybe you should consider seeking some independent legal advice, especially if it can be proven that your dad has been addicted to gambling for a longer period of time. This case against the bank or CC company may be even stronger if he has also self excluded himself from gambling/gaming venues.

      Yes the bank should not wipe off the cost/debt completely but should assist through some debt write down.

      It all depends on the circumstances.

  • +12

    With a royal commission into banks having started, i would be inclined to contact the bank and negotiate a settlement at a much lower amount - say $5k which was the original credit limit.

    Contact your local Labor member and get them involved as the increased exposure will force the bank to the negotiating table.

    Although your dad accepted the credit limit increase and gambled away the money, banks have an obligation to not act in a predatory way. They can see the cash withdrawals and should be alert to a situation occuring in your fathers life and act by reaching out and even blocking the account if it's for gambling

  • +8

    Cancel the credit card and get the balance transferred to a debt consolidation loan for him if possible, The debt is bad but to be honest is a secondary issue compared to the addiction. I personally would be focusing on working with him to beat the addiction, if that doesn't happen then the 30k debt will just be the beginning of the issues to come.

    • I will add the reason I wouldn't pay the bill is as there is a not insignificant chance that it could all end in bankruptcy somewhere down the track, hopefully, it won't but in the case it does, better the bank who approved the 30k limit loses out than you do. Gambling can be a terrible addiction, I have seen otherwise decent people stealing from those around them to feed their addiction after they have lost everything.

    • Absolutely agree with this.

      This person should never have credit cards as they cannot control themselves. The Casinos (& club pokies) will also let you insert cards.

      This person will only get worse unless they accept responsibility amd treatment.

      I have seen cases where even wages had to be paid to others so that it couldn’t be gambled away.

      • What venue allows credit cards to be put into machines??
        There is legislation against this, and if that's the case you'll find they're breaking the law.
        They even removed ATM's in gaming rooms and limiting the Max withdrawl, requiring them to be 'outside' the venue.

    • Just make sure that the consolidation loan is NOT a secured loan. If it is, he's gone from being able to declare bankruptcy and walk away from the debt to having to pay it even if declared bankrupt.

  • Is it possible that your relative lied about his income to the bank? I've applied for many credit cards over the years, they've never once actually called my place of work to confirm the details.

    • +1

      They will probably do a credit check on you. If your credit is good (no bad debts) they are likely to approve your credit card as it is considered a low risk. However nowadays I think they require pay slips or some proof of income. Correct me if i'm worng.

      • Banks do credit checks, verify employer and payslips (run ABN number and then check the tax taken out and super, as well as other loadings - if it's inaccurate they won't lend), ask small/medium business for BAS portal statements, request tax returns or payg summaries, etc.

        IF its legitimate - why wouldn't they be allowed to offer you the credit? (especially if he pays on time?).

        • This may or may not apply - I've never been asked for payslips for CC sign ups. At most, they would complete a credit check (to see your credit rating, verify employment/address, bankruptcy/defaults, etc.) Comprehensive credit checks like you mentioned are usually completed for larger lends (auto, home, etc.)

  • +5

    Here is what I would do

    1) Set up a meeting with the manager of the bank asking how someone with an income of 30K can have a credit card with a 30K limit. The bank has a responsibility to its customers to not have them commit financial suicide. Depending on their answer, I would then get in contact with the ombudsman as the whole thing sounds like corners were cut. Even if you agree to increase your limit, the bank has to make sure that you can repay. They must do their checks, have they been done….

    2) If at all possible, pay off the card yourself and get your dad help for his addiction. Otherwise the pattern will repeat.

    • +2

      Just know that if you pay it off for him, assume that you will never get the money back.

      • +1

        And they'll run the debt up again.

    • Set up a meeting with the manager of the bank asking how someone with an income of 30K can have a credit card with a 30K limit.

      The guy can qualify for a home loan of $170k. If he pays his CC bill on time - why shouldn't the bank offer him credit?

      the bank has to make sure that you can repay.

      The bank has to run formulas which will show if he can pay or not. The bank would argue that minimum payment is less than 25% of his income (depends on rate and fees of card - could be even less), so he can repay (or did he lie to them?).

      They must do their checks, have they been done

      They probably have.

  • +3

    I'm no accountant (maybe you should discuss the situation with one) but I think he should declare bankruptcy if he has no major assets. If he does, then get him on a debt consolidation loan and make him go to some sort of detox/rehab for gambling (so he doesn't rack up another $30,000 debt). Depending on how he is maybe you could even get him declared mentally incompetent and take charge of his finances for him,so he can't get in this mess again.

    I sympathise with you OP, sounds like an awful situation

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