Increased limit Vs Credit score

Paul_J

Hi all. My credit card co has just increased my limit from £8k to £9k. My balance is around £3k. I dont want or need this but obviously their "kindness" knows no bounds :rolleyes:.

My questions are:

1) How does this kind of thing affect one's credit score when applying for cards in the future? (I'm thinking specifically about how card co's view applicant's who have an excess of unused credit available, as I have similar balances and limits on several other cards).

2) Should I reduce this limit and the limits I have on the other cards? (Would it improve future credit scoring?)

Thanks very much in advance.

TrickyDicky

Paul_J wrote: »

1) How does this kind of thing affect one's credit score when applying for cards in the future? (I'm thinking specifically about how card co's view applicant's who have an excess of unused credit available, as I have similar balances and limits on several other cards).

Your total potential debt is important to lenders, because tomorrow you could suddenly max out everything and be in all of that debt. Easy rule to remember, cancel anything that you dont use.

2) Should I reduce this limit and the limits I have on the other cards? (Would it improve future credit scoring?)

Yes, having all that credit there may just igve you too much temptation. Reducing the limits and cancelling old cards will remove that temptation.

Moggles_2

How does this kind of thing affect one's credit score when applying for cards in the future? (I'm thinking specifically about how card cos view applicant's who have an excess of unused credit available, as I have similar balances and limits on several other cards).

How many is several? The national average is five, so if you have five credit cards or fewer (and you've said that none is maxed out), it's unlikely a cc application would be rejected for this reason alone, unless you have a low annual income.

Your credit limit on the new card could be affected though. Once again, this would depend on your income.

Moggles_2

Should I reduce this limit and the limits I have on the other cards? Would it improve future credit scoring?

Not necessarily.

Obviously, we don't know your annual income, but I would think carefully before you reduce limits. Lowering limits leaves no record on your credit file of the former more generous ones. Nor will credit files show they were reduced at your own request (not the lenders). Reducing credit limits can affect future applications for credit, if you overdo it.

Bear in mind that potential lenders cannot assess the way you handle credit directly. The best indications they have are the payment history and credit limits on your existing cards with other lenders.

In addition to the number of accounts in use, lenders look at the extent their credit limits have been utilised. Maxed out accounts make you look desperate for credit, so it's wise to leave plenty of headroom.

Other things being equal, it's better (credit score-wise) to have fewer cards with higher limits, than a clutch of cards with lowish limits. So, if you want to reduce your available credit, it's better to pay off the balance and cancel a card completely, as Martin advises.

Cards that are closed down and marked "settled" stay on your file for six years and indicate that you can handle a decent-sized credit limit well

Paul_J

Thank-you!