Do credit limits affect your credit score?
A high credit limit may seem convenient, but too much credit can have a negative impact on your score.
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Your credit score is a numerical representation of your risk is a borrower. Credit providers use the information in your credit report, such as your credit limit, to determine your reliability and the risk they're taking on when they lend to you. Increasing or decreasing your credit limit can impact your credit score, which is another way lenders decide whether or not to approve your application.
You can use this guide to understand how your credit limit can impact your credit score and to order a copy of your report for free.
How does my credit limit impact my credit score?
Your credit score is calculated by a credit reporting bureau using the information from your financial history, which includes your credit limits. Your credit report only contains the size of your credit limit, rather than how much of that limit you're actually using. If you're applying for a line of credit, the lender will review your report and consider your current and past credit limits (including any credit cards, mortgages or other loans).
Having too much unsecured debt (such as multiple credit cards) and high credit limits can lower your credit score. It could also result in declined credit applications, which would further hurt your score.
If you have a high credit limit that you're not using, you can contact your card issuer or lender to reduce your limit. This could help you increase your credit score and improve your chances of approval when you're applying for future loans.
What credit limit information is included in my credit report?
Since the comprehensive credit reforms were introduced in March 2014, information regarding your credit limits have been included in your credit report. Whether you have a personal loan, credit card or mortgage, the following credit limit details are included on your report:
- The amount of credit you applied for (regardless of whether or not you're approved)
- The current credit limit of the account
- New and previous amount of credit
What is my credit score?
Your exact credit score may vary depending on which credit reporting bureau you order it from. For example, if you order your score through Experian for free with Finder it will be a number between 0 and 1,000. Whereas if you get your credit score from Equifax, it will be a number between 0 and 1,200.
Your credit limit is just one of the many factors that impacts your credit history and score. If you have multiple accounts with unused credit or high limits that you're not using, you could consider consolidating your debts or reducing your credit limit to improve your score. If you want to track credit history, you should order a copy of your credit report (which you can do for free with Finder) and check it regularly.
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