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Can a high card limit negatively affect your credit history?


Laine Gordon

By Laine Gordon

3 min read

Could your credit card limit affect your credit rating? What some people may not realise is that it could be causing more harm than good. While having a credit card that is kept under control with regular repayments will not affect your credit score, one with a high limit can considerably affect your borrowing capacity for any future loans.

Consequences of higher limits

One of the most important things that lenders look at when considering loan applications, especially for a mortgage, is your credit history. If your file shows a high credit card limit they may knock you back or lend you a lot less than what you desired, as they may consider you as being financially unfit to meet your loan repayments.

Even if you only owe $1000 on a $10,000 card limit, you are still deemed a high risk as most financial institutions look at the total amount and not the balance owing.

Government crackdown

In 2012, the Federal Government banned banks from sending their customers offers to increase their credit card limit without their consent.  This ban on unsolicited increases was introduced to encourage responsible lending practices by the banks and ensure customers were in control of their own debt.  Its good news if you don't want excessive marketing brochures in the post, but if you do actually want to increase your credit limit, don't worry – you can still proactively ask your bank for one.

Gain control of your credit card

Another thing that you need to be aware of is that a higher credit limit can be harder to keep under control and pay off. This is because the temptation is there to spend more money. Regardless of whether your credit card's limit is $20,000 or $2000, here are tips on how to better manage it with minimal impact to your credit rating:

  • If you can afford to, pay the balance off each month. If not, try and pay more than the minimum repayment amount as this is typically only two per cent of the total owing and can take years to pay off your debt.
  • Keep your credit card and loan applications to a minimum. Every time you apply for a loan, credit card or even a mobile phone contract or any type of finance that involves doing a credit check, it is marked on your file.
  • Pay your credit card bill on time. Any late payments may affect your credit rating – that goes for any type of bill.
  • Apply for a credit card with a low interest rate so that you can better manage it. Compare credit cards online to see what is currently on offer and look out for ones with low interest rates as well as low annual fee.
  • If your limit is higher than what you need, ask for this to be reduced as this will look better for any future loan applications.

Don't let your high credit limit come back to haunt you when it comes to applying for your mortgage. Remember that the lower your credit card limit, the greater your borrowing ability will be.

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