Increase credit limit to improve credit utilisation?

tjhenson

Hi all,

New to the forum so apologies if this is in the wrong place. I have a pretty high credit utilisation rate at the moment which is affecting my score. I've been pre approved for a card with a limit of 3k, which would take my total utilisation from 67% down to around 46%. I've been budgeting hard lately and it's going really well and I have no intentions of spending any money on the new card as I simply don't need to. Just trying to improve my score. Is this a good idea?

TIA

abc.xyz

Yes, it will decrease your utilisation. Put the card in a drawer and don't touch it.
The downside is that there'll be a new hard search on your report, future lenders may now think you have too much credit, and the new account will decrease the average age of your accounts. You can't really win with these things; anything you do will have a downside.

[Deleted User]

No, it's never a good idea to improve your score since it's a made up number not used in lending decisions.

Be prepared (and not worried) for the score to drop again when the search and new account is added for this new card, but as above, fear not.

tjhenson

abc.xyz wrote: »

Yes, it will decrease your utilisation. Put the card in a drawer and don't touch it.
The downside is that there'll be a new hard search on your report, future lenders may now think you have too much credit, and the new account will decrease the average age of your accounts. You can't really win with these things; anything you do will have a downside.

Yeah that's what I've been thinking about but when I checked my report it was showing my affordability as weak, mainly because I have a high utilisation rate which apparently reduces my chances of getting a loan. I have been thinking about just requesting a credit limit increase on one of my cards as it would be with the same lender I've been preapproved the new card for.

!!! wrote: »

No, it's never a good idea to improve your score since it's a made up number not used in lending decisions.

Be prepared (and not worried) for the score to drop again when the search and new account is added for this new card, but as above, fear not.

Ah OK that is useful to know. All quite confusing as my report seems to make out that they look at high usability as a bad thing and from what I've read anything under 60% is favourable.

[Deleted User]

tjhenson wrote: »

Yeah that's what I've been thinking about but when I checked my report it was showing my affordability as weak, mainly because I have a high utilisation rate which apparently reduces my chances of getting a loan. I have been thinking about just requesting a credit limit increase on one of my cards as it would be with the same lender I've been preapproved the new card for.

Ah OK that is useful to know. All quite confusing as my report seems to make out that they look at high usability as a bad thing and from what I've read anything under 60% is favourable.

Who is the lender?

Ignore the CRA's advise - they aren't the ones lending money

Ben8282

I would agree with the idea that a high utilisation % would be viewed negatively in applications for new credit. However, whatever effect this may have on the score is irrelevant as the company to which you apply for credit will not see the score.
Having said that, with 67% utilisation you have successfully applied for a new credit card for the sole purpose of reducing your utilisation in order to improve your chances of obtaining credit. Think about that.

Voyager2002

I will just add that being pre-approved is meaningless. If you apply, you can be certain that a new 'hard search' will appear on your file but there is no guarantee that you will be given the new card.

Your best strategy is to reduce your utilisation percentage by gradually repaying debt.

Thrugelmir

Another ratio used is debt to gross income. You might pass on one but fail on another. Better to focus your energy on looking after the pennies.

Ben8282

Voyager2002 wrote: »

I will just add that being pre-approved is meaningless. If you apply, you can be certain that a new 'hard search' will appear on your file but there is no guarantee that you will be given the new card.

Your best strategy is to reduce your utilisation percentage by gradually repaying debt.

Missed the pre-approved bit. Thought OP had actually obtained the card.
My advice has therefore changed. This meaningless pre-approval is a marketing tool being used by whoever has informed you that your credit score needs improving to get you to apply for this card for which they will receive a financial consideration. How do you know the credit limit though. This would imply that you have actually used the eligibility checker of one of the lenders which actually tells you the limit in advance rather than some 'pre-approval' from the credit score providers. Can you clarify this and say which lender it is.
I can see no reason to apply for a card that you won't use for this purpose as it makes no sense. The assumed reason for obtaining this card to improve your score is to obtain credit, but if you can obtain credit with your current utilisation % then why improve it for this purpose?

yksi

Back up a bit - why do you even care what your utilisation rate is - are you actually planning on applying for a loan in the first place? If you aren't, then ignore it. It will go down later as you pay off the card anyway. Lenders will not care what your utilisation used to be, just that you paid on time.

The application process itself for gaining that extra card might lower the chances that a (personal?) loan would be approved, as could the total amount of credit that you have access to already, relative to your income.

In essence there isn't a simple guaranteed answer to your question, but it would help to know what your overall goal is here.

Can I just also add that the MSE calculator isn't perfect, it has told me that I my disposable income is good AND that my affordability is weak. Just in case that's where you are looking.

tjhenson

All,

Thanks for all your responses. This was exactly the kind of thing I was looking for. To clear things up a bit, I'm currently just trying to improve my credit score in the long term and I want to know the best way to do this. I will be buying a house by the end of next year and want to look as appealing as I can to mortgage lenders. I have no plans for a large purchase excl. a home anytime soon. I just want to get rid of as much debt as possible whilst improving my score along the way.

After taking all your advice on board I don't think I'll bother with getting a new card, sounds like there is no need. No quick wins here, just need to take my time and pay off things as I can and get the rate down naturally (not that it even matters).

Again thank you all for your responses they are very, very useful. If you have any more tips for someone like me that has more debt than he should and how best to manage it, any advice would be welcomed.

Tom.