Should I accept a credit limit increase?

tjramage

Hi there,

I'm fairly new to all this credit stuff so still trying to get my head around it. I have a quick question...

I'm a uni student studying from home, and recently applied for a credit card to start building up my credit score (December 2010). My application was successful and I was given a credit limit of £500. I have been managing my account properly, using my card for pretty much everything I buy, and paying off everything in full at the end of each month.

Now, four months on, I receive a letter in the post from them (Capital One) saying that I am eligible for a credit limit increase! Wahey! They say my new limit will be £1100 and the change will be effective in June. If I don't want the increase, I need to opt out.

What I want to know is whether accepting this increase will harm my credit score. At the minute, I'm using close to all of my £500 limit each month (around 90% or so). Obviously I'm a uni student, so I'd never dream of spending £1100 in a month. Which is exactly my problem.

If I don't opt-out, I'll have a credit limit of £1100 but I'd only ever use around 40% of that. I'm sure I read somewhere that if I'm not properly using the available credit given to me, it can harm my credit score (eg, having £1100 credit limit and only spending £200 of it each month). Is this true? If so, would I be better off keeping my £500 limit?

However, I assume as I have been entrusted with a larger amount of credit that it's possible my credit score could go up. Is this true?


Hopefully someone with a bit of knowledge in this area could help me. Thanks for taking the time to read this


- Tim.

izools

Actually, it will improve your score.

Using 90% of your available limit is a bad and obvious sign of debt stress.

Using 40% of your available limit shows that you aren't suffering debt stress and aren't using the credit just because it's there. It shows resonsibility and restraint.

You would be wise to accept the limit and continue to spend what you do. This will help your creditworthiness a fair bit

tjramage

Wow, I had no idea that the way I had been using it could be bad for my credit score...

So have I actually done myself any good by getting this credit card?? Surely Capital One wouldn't have upped my limit if I'm harming my overall rating...

izools

No Capital One love it as you are making them the most possible amount of VISA transaction fees by using all of your available limit, hence them furthering you more.

3rd party creditors however would see it as a sign of debt stress.

You've done yourself a favour for sure, and even more so with the increased limit. All is good, so long as you accept the increase and keep your spending to the level you're at :beer:

tjramage

Ahh ok. That's good to know!

Thanks so much for your help