Have you ever had a letter through your door to say that your credit card company was ‘rewarding’ you with an increased credit limit? Although this news may make you feel excited at the thought of all the things you can buy, it’s crucial that you’re able to manage the extra debt responsibly.
After all, one in five people who are struggling with credit card debt say that their card provider raised their limit without their permission, according to a survey from Citizens Advice.
Those struggling with long term credit card debt were the most likely to have their limit increased, a move that runs the risk of plunging them further into debt.
With household expenses and other essential living costs rising much faster than the average wage, it can be far too tempting to make the most of all possible lines of available credit. So whether you’re struggling with your existing debt or you’re managing it well, it’s important to think about the implications of taking on more.
Here I’ve answered some of the most common questions when it comes to unsolicited credit card limit increases.
Why has my credit card company increased my credit card limit?
Credit card companies often phrase these sudden limit increases in a way that makes it seem like they’re doing borrowers a favour. They say things like “good news” or “as a thank you…” when in reality, the limit increase has greater rewards for the credit card companies themselves than they do for customers.
In theory, credit card companies (and other type of lender) should only be offering more money to those who demonstrate a real ability to pay the money back. However, many credit card companies will increase the borrowing limit of those with a poor track record when it comes to debt in a bid to make more money out of them.
Some credit card companies might also increase the limit of borrowers who perhaps don’t make full use of their existing limit. They do this in an attempt to encourage these borrowers to make greater use of the line of credit available to them.
Can automatic credit card increases affect my credit rating?
Automatic credit limit increases won’t necessarily affect your credit rating. However, if you’re hoping to buy a home in the near future, some mortgage lenders may be reluctant to lend you the money you need if they see that you have a huge limit on your credit cards. This is because they may be concerned about you going on a massive spending spree and landing yourself in large amounts of debt.
However, some lenders have a completely different outlook. Let’s imagine you have a £2,000 limit but you consistently only use a quarter of that, some lenders may see this as a good thing.
To err on the side of caution, it’s probably not worth accepting a large credit card increase if your only reason is to improve your credit rating. There are other ways to improve your credit score and boost your chances of getting a loan or mortgage, so it’s not worth the risk – especially if there’s a chance you may be tempted to borrow more than you can afford to repay.
Whether your credit card company increases your limit or not, remember that missing repayments, paying less than the minimum, or paying late will affect your credit rating.
Can I reject an automatic credit card increase?
Although this type of credit card increase is often automatically added to your account, it is possible to reject it if you wish.
Credit card providers have a responsibility to give customers 30 days’ notice of a limit increase. During this 30-day notice period you can reject the higher limit if you want to. You can usually do this by phone, online or letter.
What can I do if my credit card limit increased without my permission and I’ve already used some of it?
If your credit limit increased and you’ve already spent more than you intended, contact your card provider as soon as possible to discuss the matter. Not only should they reduce your limit, they may be able to create a payment plan to help you repay the money.
You may also be entitled to file a formal complaint if your lender increased your limit when you’re already struggling to repay existing debt.
If your complaint isn’t resolved within eight weeks of submitting it, you can complain to the Financial Ombudsman.
Are automatic credit card increases unethical?
Many debt charities are campaigning to make it harder for credit card companies to increase borrowers’ credit card limits without their permission.
After all, a sudden credit card increase can often tempt borrowers to spend more money, even if they’re working hard to repay their current debt.
And although borrowers can turn down credit card increases if they wish, many simply won’t want to – even though they may be bad at managing their debt. Turning down an increase can be especially hard if you’re going through financial difficulties and managing your budget is already a struggle.
Are there any rules in place to stop unsolicited credit card limit increases?
In 2011, the UK Card Association published a series of guidelines relating to credit card limit increases in an attempt to protect vulnerable borrowers from being encouraged to take on more debt.
These guidelines include a set of ‘risk indicators’ that suggest a borrower should not be offered more credit. These include:
*The borrower’s account is in arrears
*The balance currently exceeds the credit limit
*The lender has been formally notified by a debt advice agency that the custom is having serious discussions with them
*There is a repayment plan in place
Although lenders are encouraged to refer to these guidelines, not all abide by it.
Also, even if none of the above risk indicators are applicable to a particular borrower, increasing their limit without their permission could still result in bad financial consequences for them.