You may or may not be aware of your credit limits and what impacts them. Every single one of us has a credit limit, which is basically the amount of money that a lender is willing to lend to you at any one time. Keeping within your credit limits is a great way of keeping your credit score in tip-top condition and avoiding any charges or fees being added on top. Credit limits apply to all types of financial services, including credit cards, overdrafts, payday loans and short-term loans.
The best way to look at your credit limit is to see it as the amount of money that a lender has approved for you to borrow. A great example is your bank account overdraft. If you have an overdraft of £1,000, this is essentially what the bank has approved for you to use. However, if you were to go over the £1,000 overdraft limit by £100, then you are using money that you have not been approved for and you can be fined or charged for this. A payday loan for a short-term loan differs from an overdraft as you are given a preset amount in one lump sum. This amount cannot be increased once approved and deposited, and as long as you pay it back on time, you will avoid any extra charges being added.
How is my credit limit worked out?
The amount of money that a lender is prepared to loan to you is determined by several different factors. Ultimately, the final decision is down to the lender and how much you receive will depend on a few different things, including your ability to be able to pay back the amount borrowed. To give you an idea of how this works, we will use a payday loan as an example.
When you apply for a payday loan, you will fill in an application form. This application form will ask you various questions covering your current expenses, your employment, your credit history, any outstanding credit that you may already have, how much income you have each month, and whether you have been a customer of theirs in the past. As soon as you have completed your application, the lender is able to look at your incomings and outgoings, along with your credit report to assess your eligibility for a payday loan.
The better your credit report is, along with a clear ability to be able to repay the amount of credit borrowed will typically result in a larger short-term loan or payday loan being approved. Those who cannot demonstrate an ability to be able to pay for a large payday loan will typically be refused or a smaller amount may be offered. You should never take out any more than you can realistically afford to repay as this will not only place you under financial strain, but can also make it more difficult for you to borrow in the future.
Can I increase my credit limit?
It is standard with all lenders, be they loan providers or credit card providers to only increase the credit limit once the customer has demonstrated a pattern of making repayments on time and for the correct amount. The majority of credit card providers will consider increasing your credit limit after 6 months. While you cannot increase the amount you have borrowed with a payday loan or a short-term loan, you can request a larger one in the future.
If you do not keep up with your repayments or decide to stop paying completely, you will not only destroy your credit report, but may also face legal action from the credit provider. This is why it is always important to only borrow what you can afford to repay. Your credit limit is drastically impacted by your credit report, so keeping it in good standing goes a long way with securing larger amounts of credit.
Simply having a bad credit history does not mean that you will not be able to obtain a payday loan or credit card, and a reputable broker such as Sure Money UK will be able to help you get the finance that you need. Of course, all of the above will be taken into account when you apply and the amount that you can borrow will be decided by the lender.