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Why is my credit limit low?

Fri 09 October 2020

Why is my credit limit low?

If you’ve just successfully applied for a loan or a credit card, you may not have been given as much credit as you’d hoped for, and perhaps you’re wondering why.

So let’s take a look at why your credit limit is low - and what you can do to improve your credit score in future.

What does credit limit mean?

When you’re approved for a new credit card it will come with a credit limit, which will be specified in the documents it arrives with. This is the maximum amount that the lender is prepared to lend to you on the card.

The same process also applies if you’ve been approved for a loan - perhaps you asked to borrow £2,000 but the lending company will only let you borrow £1,000.
A low credit limit is simply designed to stop you from spending beyond your means.

Each lender has their own criteria for assessing how much credit to extend to customers, but there are a few reasons why you might currently have a low credit limit.

Firstly, your credit score may have been low when you applied for the loan or credit card.

Secondly, you might be relatively new to applying for credit and haven't yet built up a long UK credit history.

Ways to increase your credit limit

Whatever your UK credit limit, there are things you can do to improve the chances of it increasing over time. 

If you can improve your credit score, then the chances are when you next apply for a loan or credit card, your credit limit may be higher and you won’t have to consider a bad credit loan.

1: Don’t apply for more credit if all your existing lines of credit are maxed out; as this shows that you may not be living within your means, which can affect your credit score, however reducing your balances could later improve your credit score. Applying for multiple loans at once or having a large number of creditors may also have a negative impact as it can appear that you’re reliant on credit.

2: Pay your bills on time. Late payments can lower your credit score, however paying all of your obligations promptly every month should improve your credit score for future applications. This includes mobile phone bills and utility bills.

3:Opening a bank account can help show your financial responsibility and could improve your chances when it comes to making your next application. By setting up Direct Debits, and always having money in your account to cover the payments, you will show lenders that you can pay on time.

4: It’s also a good idea to register on the electoral roll. This helps lenders to easily confirm your name and address, so your score should increase as a result.
If you’re not already on there, you may find it more difficult to get credit. Go to the gov.uk site to find out how to register to vote.

5: If you haven’t applied for credit before or you’ve relied on loans for people with bad credit, you’re likely to have a very limited or empty credit report.
This could flag you as a high-risk borrower, as there is little or no evidence that you have borrowed money responsibly in the past.
Applying for a starter credit card enables you to build up and improve your credit score. They start with a low credit limit, usually somewhere between £100 and £200, but this increases as you show you can manage credit.
Interest rates are usually higher than normal credit card rates, but if you repay the full balance every month then you won’t pay interest at all. These products are also useful for people who have previously relied on bad credit loans. 

Remember, while an increase in your credit limit can be a positive thing, it may also have the potential to tempt you to spend more than you should or can afford.

Never use a higher UK credit limit as a licence to buy things you can't quickly pay off.

If your credit limit and your credit score remains poor, there are some loan companies that  offer loans for people with bad credit or very bad credit scores, so do your research before you apply.

Representative 466.37% APR. Morses Club specialise in small cash loans to help with unexpected expenses. Our loans aren’t right for everyone, and you should only borrow what you can afford to pay back. If you would like to find out if a Morses Club cash loan is right for you, read our FAQs for more information.

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