Credit limits - do they impact in any way?

BirdSeed

Hello,
First of all, please let me apologies in advance if this has been posted elsewhere. I can only snatch a few minutes of personal time at lunchtime and haven't been able to read through all the threads.


So, I recently realised that credit scores are worthless. (Thank you!). However, up until learning this I was trying to improve my credit score (I know....) and had managed to get it from very poor to fair in just a few months.
My report stated that a negative was the number of credit accounts I have (i.e. 3. 2 of which are settled) and that the highest credit limit was quite low (almost £4k). As a result of this I opened a catalogue account which offered a credit limit of £1k. (I have never used this account so it has a zero balance). (I now also understand that this might be counter-productive for what it's worth if I'm not going to use it).


I am also saving for a mortgage as I am a first time buyer. I'm on the electoral register even though I've moved home a lot (due to living in crummy rentals) and have also been out of the country travelling for 2 years, all of which have impacted on my credit report.


So my question is, with my intention to get a mortgage in mind, should I reduce my credit limit from £4k and close the catalogue account or just leave them as they are?


I feel like it's one of those 'can't do right for doing wrong' situations.


Hope everyone has a lovely day. Thanks for taking your time to read this and help me.

matttye

I'm guessing Experian are saying that a low credit limit is negative because it means the lender can't trust you with a higher limit.

I don't see how it's a negative, and I don't see how £4k is a low limit either.

I wouldn't pay any attention to what Experian are saying. If £4k is not a huge amount compared to your yearly salary then I wouldn't worry too much.

If you have, say, 75% of your yearly salary in available credit then I would consider reducing some limits, but if you would be able to furnish all of the debt if you were to max out your limits and still pay the mortgage, then it's likely your application will succeed.

The mortgage company just want to assess whether you can comfortably afford to make the repayments and whether they trust you to do so.

Experian_company_representative

Better to leave the accounts open now, keeping them up to date with low or zero balances, and avoid any further applications in the run up to your mortgage application.


A high credit limit is often seen as a positive for credit scores because it shows other lenders trust you.


It will also help if, assuming you do have some outstanding balances, your report shows that you've been reducing these in the months before your mortgage application. This will demonstrate you are on top of your finances and have spare cash to help meet the mortgage payments.


While the score we give to you is only indicative, it is based on the scores we help many UK lenders build, so it should give you a good idea of how the credit report will be rated as part of the lender's various assessments.


James Jones

InsideInsurance

Experian_company_representative wrote: »

Better to leave the accounts open now, keeping them up to date with low or zero balances, and avoid any further applications in the run up to your mortgage application.


A high credit limit is often seen as a positive for credit scores because it shows other lenders trust you.


It will also help if, assuming you do have some outstanding balances, your report shows that you've been reducing these in the months before your mortgage application. This will demonstrate you are on top of your finances and have spare cash to help meet the mortgage payments.


While the score we give to you is only indicative, it is based on the scores we help many UK lenders build, so it should give you a good idea of how the credit report will be rated as part of the lender's various assessments.


James Jones

James

Given you are giving more direct advice than normal; you advise those who have outstanding balances to try and reduce them but what would your advice be to those who follow MSE advice and use reward credit cards for all possible things but clear the balance in full each month?

Is the fact that the balance is cleared, even if an outstanding balance would be shown on your system, enough to keep you in the green or would you additionally recommend reducing your spending in the leading months even if affordability is in no way a question?

CKhalvashi

Experian_company_representative wrote: »

A high credit limit is often seen as a positive for credit scores because it shows other lenders trust you.

It's also the amount you could spend immediately, on top of whatever is being lent, so could be risky for lenders.

James is right with the above, but it's always balancing act between the two for lenders.