A Fin24 user wants to know whether the high credit limit on his credit card could impact his credit score. He writes:
Does having a high credit limit on a credit card - for instance R100 000 - reduce my credit score?
I have a home loan and vehicle loan as well as a credit card, which is my only debt.
READ: Impact of credit report on vehicle finance
Lerien van der Merwe, manager of Debt Rescue's legal department, responds:
When your credit score is calculated it is done by evaluating different categories of information held by the different credit bureaus.
The categories include payment history, size of amounts owed, length of credit history and amount of recent credit applications.
These are not the only information taken into consideration as some other variables also play a role in determining your credit score, for instance, administration orders, sequestration orders, judgments, adverse information and collections information.
Payment history is one of the most important factors taken into consideration when calculating your credit score. Late payments and failure to pay will have a big negative impact on your score, while paying accounts in a timely manner will have a positive impact.
Always maxing out the credit limit on your accounts can also negatively impact your credit score. Interestingly enough, when you open an account, but don’t make use of it, it will also negatively impact your score.
READ: How to read your credit report
The length of time that you have had credit is another very important variable in calculating your credit score. The longer your credit history is the better.
Lastly, the number of recent credit applications made also plays a role as this can be an indication that you are experiencing financial difficulties.
In essence, the amount of your credit card limit can influence your credit score, especially if you max it out every month, or on a regular basis.
You should remember that a credit score takes many variables into consideration when determining the score and the conduct on your other accounts will also influence the ultimate score.
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