A high credit card limit can seem like a good rainy day convenience, but what effect will it have on your credit score?
Your credit score is a numerical representation of your risk is a borrower. The information on your credit file helps credit providers understand how reliable you are with your credit, and what risk they're taking on when they lend to you. Your credit score, therefore, is influenced by any changes in your credit file, or any behaviour that could be calculated to be a risk. This guide will show you what effect your credit limits can have on your credit score.
What is a credit score?
Your credit score is a number representing your risk as a borrower. It's calculated by a credit reporting bureau using the information on your credit file. For example, your Experian score (which you can check for free through finder) will be a number between 0 and 1,000 while your Equifax Score will be a number between 0 and 1200.
What credit limit information is included in my credit file?
Before comprehensive credit reporting reforms were introduced in March 2014, no information relating to your account's credit limits were included in your credit file. Now, for whatever active credit account you have or applications you've made for credit, such as for personal loans and credit cards, the following information relating to your credit limit is included in your credit file:
- The amount of credit you applied for
- The current credit limit of the account
- New and previous amount of credit
How do my credit limits impact my credit score?
| Credit limit activity | Impact on your credit score |
|---|---|
| Having too much unsecured debt | Decrease score |
| Having too high a combined limit on credit accounts | Decrease score |
How does my credit file affect my credit score?
It's important to note that lenders can only see some information pertaining to your credit accounts. They will be able to see your credit limit and whether you have been making your repayments on time, but not how much of your credit limit you have used (as is the case with US credit files). So, a high credit limit means a higher potential for debt. This could have an impact on your credit score.
If you have two or more high limit credit cards with little debt on them, and you have no use for the limits, you should consider closing them to improve your credit score. However, your credit limit is not the only thing that is influencing your credit score, so it's important to order a copy of your credit report (which you can do for free with finder) and check it regularly.
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Can I remove old credit enquiries?
Hi Roy,
Thanks for leaving a question on finder.
You can’t remove a legitimate inquiry from your credit report. The only inquires that can be removed from your credit report are those that are incorrect or erroneous, like if a lender made a hard pull on your credit without proper authorization from you. In these cases, you can submit a request to have the inaccurate details removed from your report.
For a legit credit inquiry, you’ll simply have to wait two years to have a hard inquiry taken off your credit report — though it’ll only impact your credit score a year at most. On the other hand, a soft pull on your credit can only be seen by you and has no affect on your credit score.
Cheers,
Joel
How does closing a credit card possibly negatively affect my credit score?
Hi Duncan,
Thank you for getting in touch with finder.
Some people cut up their credit cards thinking it will improve their credit score. But that’s not always the case, although there can be other benefits for your personal finances. Having five credit cards, for example, makes no difference to your credit score, providing you’re making all your payments on time. Closing one, providing there’s no outstanding debt, usually won’t harm your score.
Closing an account could impact your credit score because you’re losing the credit limit attached to that account. If you have balances on other accounts, the closing of an account could increase your credit utilization ratio because it will cause you to have less available credit overall.
Closing a credit card account you’ve had for a long time can also impact your credit score because you will lose the associated history with the card. The length of your credit history makes up 5 percent to 7 percent of your Equifax credit score.
I hope this helps.
Please feel free to reach out to us if you have any other enquiries.
Thank you and have a wonderful day!
Cheers,
Jeni