Is your credit card limit too high? – Which? New


Some Barclaycard customers may have received, or will soon receive, letters of apology for setting their credit card limit too high – but what effect could this have on your finances?

Barclaycard said what? the problem only affects a small minority of his customers (he won’t say exactly how many) and he is in the process of contacting everyone involved.

While granting a high credit limit might sound appealing, it could cause you debt problems if you spend more than you can afford to repay and could affect your ability to borrow money. ‘to come up.

Here, which one? explains how credit card providers decide your limit, how your credit card limit can impact your credit score, and what to do if you think your limit has been set too high.

Why is Barclaycard revising some credit card limits?

When we asked Barclaycard why they decided to review their customers’ credit card limits, they told us that they do it regularly and naturally.

As part of this review, the credit card provider stated that there were a small number of instances where it failed to consider all of a customer’s circumstances and / or financial situation, and a higher limit was set in error.

Barclaycard has confirmed that the system is now fixed, so this issue should not occur again.

Any customer who believes they have been harmed by the granting of a higher credit limit than they should – whether they suffer losses or have other negative effects on their situation – are invited to contact Barclaycard, where the aid is evaluated on a case. case by case.

How do providers set your credit card limit?

Your credit limit is the maximum amount that you can owe at any one time on a particular credit card.

Credit card limits vary from provider to provider, depending on how they perceive your personal situation. When you apply for a credit card, the provider will set your limit based on:

  • Your credit history: if your credit history shows that you are a reliable borrower, you are likely to get a higher limit than those with missed payments, arrears, or CCJs. You may also be at a disadvantage if you have never borrowed money before because a lender cannot tell if you can be trusted to repay the money.
  • Your cash: in the application, you will likely need to itemize how much money you have left each month after paying for things like your rent or mortgage, household bills, and food; the more money you have to pay off a potential credit card, the higher the credit limit you will receive.
  • Other loan: any money you owe on mortgages, personal loans, overdrafts and other credit cards will be considered, along with any credit limit that has already been granted on other credit cards.
  • The supplier’s loan policy: some credit card providers are more risk averse than others, so what you get may vary. Moreover, different credit card offers also come with different credit limit offers.

Credit card providers can choose to increase or decrease the credit limit, usually depending on how you manage the card.

Those who successfully use up a large portion of their credit limit and pay off debt on time are more likely to increase their credit limit, while credit card providers are more likely to lower the limits of those who are running low. payments or just aren’t using much of their available limit.

How Does Your Credit Limit Affect Your Credit Score?

Having a large credit limit won’t necessarily have a negative impact on your finances or your credit score – it all depends on how you use it and what it suggests to lenders.

We spoke to James Jones of the credit reference agency Experian, who described some of the major indicative score factors for credit cards.

“The worst-case scenario is being in a situation where you’ve used up your entire credit limit and you’re not able to meet the minimum monthly repayments,” says James. “But if you have a low balance and low credit usage, it would earn credit points. “

Missing a single repayment could result in the deduction of 130 points from your credit score; this increases to a loss of 350 points if the account is in default and transferred to collections – which could put off future lenders.

Your balance, your credit card limit, and the length of time the card is used may also have an effect. James says a balance below £ 50 could add an additional 60 points to your credit score, while a balance above £ 15,000 would reduce it by 50 points.

A credit limit of £ 5,000 or more adds 20 points, but granting a limit of £ 250 or less would reduce your score by 40 points.

You might get an additional 20 points if you’ve had the same credit card for more than five years, but you will receive 40 points if you’ve opened a new credit card account in the past six months.

According to James, one of the best ways to use your credit card to improve your credit score would be to have the same card for five years, which has consistently maintained a low balance and a high credit limit, with a record. perfect payment.

Having it on your file could increase your credit score by up to 200 points, which could lower your description as a borrower from “fair” to “excellent”.

How much of your limit should you spend?

If you want to use your credit card to boost your credit score, it is recommended that you use around 25% of your credit limit each month.

This amount will demonstrate to lenders that you can be trusted to borrow and repay money, without being too dependent on it and without spending beyond your means.

If you are currently using a higher percentage of your credit limit each month and can afford to increase your credit limit, a higher limit could actually benefit your credit score in this case.

James says using less than 30% of your credit limit would add 90 more points to your credit score – a pretty large amount. However, if you use more than 90% of your limit, you might see a 50 point reduction.

What are the rules for automatic credit limit increases?

Some credit card providers will reward “good” borrowers with a higher credit limit, perhaps after a customer has proven to be reliable in repaying and managing the money they borrow.

However, you may not be asked if you want the increase, and not all providers will let you know in advance – sometimes you will just be notified of your new balance once the change is made.

While this change is usually an incentive to stay with a credit card provider, you don’t have to agree to an automatic credit limit increase. You will have 30 days notice from the date the credit limit was changed to reject it by contacting your provider. You can also request a reduction in the credit limit.

Under the rules of the Financial Conduct Authority (FCA), anyone with persistent debt – that is, if you have had to pay more interest and fees than what is on your credit card balance – in the past 12 months you should not be offered increase in credit limit.


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