In the UK there are tens of thousands of credit cards, some being used on a daily basis, some stuck forgotten at the back of a drawer. Since being in possession of a credit card is practically the norm these days, it’s surprising how little we understand about the hows and whys of using them in a sensible manner.
Take the issue of credit limits. You’re probably familiar with that little piece of information, tucked away near the bottom of your monthly statement. Your credit limit is £600, £1,000, or whatever. And you probably think that is the amount up to which you’re entitled to spend.
However, this limit is really more of a guideline. If you want to keep your credit score high, you shouldn’t be going anywhere near your stated credit limit. Keeping your spending to around 30% of the credit limit is a wise move, because doing so will help push up your credit rating.
Having a high credit rating matters more than you might think. A healthy credit score gained through using your credit card in a responsible manner will help you secure more substantial credit in the future, such as a mortgage or a personal loan to buy a car.
Many people got a shock last year after their credit limits were severely cut back by providers. Often the cardholders hadn’t done anything wrong at all. They were making their payments on time and paying off their debts in a responsible manner.
In fact, the reason the limits were reduced was a reaction to the over-lending that had previously taken place and it served to show that credit card companies can and will reduce limits without having to give notice.
If you are fairly new to having a credit card, the chances are that your initial limit will have been set at a low level. This is because lenders are understandably cautious about making large amounts of credit available to someone without a proven track record.
However, after a period of time during which you’ve acted responsibly, keeping your spending well below your credit limit and making sure you always get your monthly payments made on time, your provider may increase your credit limit.
You shouldn’t take this as the green light to go out and buy whatever takes your fancy. Remember that although the credit card company is seeing an opportunity to get more business out of you by increasing your limit, your income is still probably the same. That means your spending should stay firmly in line too.
Going over your credit limit will land you with a penalty fee, usually charged at around £12. The fee will only be charged once during the month, but don’t think that you can avoid it by making an ‘emergency’ payment on your card before your statement date.
It’s a good idea to contact your provider in advance if you know that there’s a chance you are going to spend more than your limit. They may be sympathetic and extend your credit limit, thereby allowing you to escape that penalty fee.
If the only reason you’ve gone over the limit is because of an error, such as a transaction being processed twice, contact your provider and explain. In such a situation they will agree to waive the penalty fee.
If you have been managing on a fairly low credit limit for some time, don’t assume it has to stay that way forever. You’re perfectly entitled to contact your provider and ask for your limit to be increased.
They’ll need to satisfy themselves that there’s been an improvement in your finances, such as a pay rise and of course they’ll look at your payment record to check you’ve acted responsibly in the past.
Having a poor credit history doesn’t necessarily prevent you from getting a credit card. click here for more information and advice.
