Credit scores v credit cards

PaulDesmond

Hi, I have watched Martin Lewis talk about this on TV. The more he talks about it, the more I am confused. I tried to improve my score by getting and using a credit card. I had problems getting a new mobile phone from a different provider and operator. They did not know me so turned it down.

I have now got a £200 credit card which I am mostly using and paying it off at the end of the month. If they increase this (which I believe they will) and they increase it. If they increased my card to £500, would this reduce my credit rating if I only used £200? Would it be better to have a limit of only £300 leaving me only £100 unused. Seems the more unused reduces your rating.

There seems to be a thing about how much you have available and how much is used. No matter how much Martin explains this, I am still no wiser. 

Can you clear this up for me?

 

grumpy_codger

It's your credit history that matters, not some vague 'score'. 
A higher credit limit can make your history look a little better.
And it will be wiser not to use your CC up to the limit as, depending on the reporting cycle to the CRA(s), this can possibly make your (used credit)/(available credit) ratio that lenders calculate look worse.
https://www.comparethemarket.com/credit-cards/content/credit-utilisation-rate/

CliveOfIndia

Your credit score is irrelevant, it's not even visible to lenders.  A lender will score you internally based upon your credit history and financial circumstances, but their internal score bears no resemblance whatsoever to the meaningless score dished out by the CRAs.

The CRAs do get in a tizzy if you use a large percentage of your available credit - but since they're not the ones lending you money, it doesn't matter how they view you.  As long as you're repaying in full every month (assuming it's a standard interest-charging card), then it's largely irrelevant how much of your available credit you use.

Brie

Have you had a look at what else might be effecting your ability to get credit?  

Do you have an overdraft that you are constantly using?  Lots of credit agreements for other things - home or motor insurance, catalogues.  Even checking to see what phone company might give you a mobile contract may be leaving fingerprints behind.  Are you registered to vote?

And it's easier and cheaper to get a sim only contract rather than one that's going to give you a shiny new phone every 18 months.  I used my credit card to buy a phone and got a sim only deal that is only £8 a month. (more data and calls than I'll ever use)

born_again

Best advice

FORGET SCORE.

It's a meaning less figure made up by the CRA to make you feel good or bad...
As others above have said it is your history that counts (no missed payments)

PRAISETHESUN

+1 to ignore the score.

All that matters is you are demonstrating to lenders that they can trust you to manage credit responsibly. You do this by spending on your credit card, and then paying it off in full each month after the lender generates your monthly statement. It doesn't matter how much of your limit you use, especially if you pay it off in full. Feel free to spend as little or as much of your limit as you need to - just don't use it as an excuse to spend willy nilly!

km1500

That is interesting information - could I just understand that I understand it properly

if I wanted to apply for a new credit card it would not matter if my existing credit cards were maxed out or hardly used at all ( obviously as long as payments were being made)

Nasqueron

km1500 said:

That is interesting information - could I just understand that I understand it properly

if I wanted to apply for a new credit card it would not matter if my existing credit cards were maxed out or hardly used at all ( obviously as long as payments were being made)

If they are maxed out and paid in full every month or on a promotional rate and at least the minimum is being paid, it's generally not a major thing but too high a ratio of debt vs salary can be a flag

CliveOfIndia

km1500 said:

That is interesting information - could I just understand that I understand it properly

if I wanted to apply for a new credit card it would not matter if my existing credit cards were maxed out or hardly used at all ( obviously as long as payments were being made)

If you are carrying a large balance from one month to the next then it would be an issue.  Even worse if you're only paying the minimum, or not a lot more (except in the case of a 0% promotional rate).

But if you're clearing in full every month then it's no issue at all.  Looked at purely objectively, it demonstrates that whilst you may be borrowing a large amount each month, you're obviously able to repay it all without any issues.

There does come a point where your total amount of available credit (even if unused) comes into play.  But there are plenty of examples of people who have available credit equal to multiples of their salary, so it's rarely a problem in the majority of cases.

km1500

Thanks for the information

I was interested in the scenario where for example you have three maxed out credit cards paying minimum each month but they are 0% promotional rates (purchase cards) and you want to go for a fourth zero percent promotional rate card.

grumpy_codger

CliveOfIndia said:

km1500 said:

That is interesting information - could I just understand that I understand it properly

if I wanted to apply for a new credit card it would not matter if my existing credit cards were maxed out or hardly used at all ( obviously as long as payments were being made)

...it demonstrates that whilst you may be borrowing a large amount each month, you're obviously able to repay it all without any issues.

Does it really demonstrate this? I don't know what lenders see, but what I see is snapshots of the balance once a month (times are different from the billing/payments cycle) and 'paid on time' - the same for the card where I make minimum payments and for the card that I pay in full.