What are credit card limits?
Creditors should run 'affordability checks' before offering credit limits. This is to make sure they are being fair to you and not putting you at risk of debt you cannot repay.
You can complain if you do not think they have checked what you can afford.
I have a good credit history
You will often be offered a higher credit limit. This could be thousands of pounds.
And your provider may offer you a higher limit after you have been with them for a while. This will be if you have a good payment record with them.
You don't have to say yes to higher limits. Think about:
- If you need this option of extra credit?
- Can you really repay what you would owe if you used it?
I have a bad credit history
There are cards for people with a bad credit history. They tend to have a low limit of £200 or so.
Often these cards have a high interest rate.
If you pay them back on time, they can be a good way to boost your credit rating. This can show other lenders you can be trusted. But always think first about if you can pay what you owe each month. Bearing in mind the higher interest.
How does interest on credit cards work?
It can be hard to work all these fees out. Read our guide to interest and charges.
Interest is the amount added on top of the amount you borrow. Think of it as the ‘cost’ to borrow money.
It can be anywhere between 10% and 70%.
It will be lower if you have a good credit rating.
You need to look out for the 'annual percentage rate' or APR. This is amount for the year.
Some cards are 'interest-free'. These are also known as '0% interest credit cards'.
Interest-free deals are often only for a set amount of time. Such as six months. You may not be able to get one of these cards if you have a poor credit rating.
If you pay back what you owe during this time you will not have to pay interest.
You need to check the terms of your card. You may still have to pay interest if you use a card machine even if it is 'interest-free'.
Late payment charges are on top of any interest you pay.
How do credit card balance transfers work?
You may be able to transfer the balance to another card. This means moving the amount you owe to another credit card account.
You may be able to pay what you owe faster if you move the balance to an interest-free card.
But there are often fees for balance transfers.
This fee will be around 2 to 3% of the amount you are transferring. This is a one-off fee.
So, if your balance is £1,000 and your balance transfer fee is 3%, you have to pay £30.
Cut up old credit cards when you clear the balance on them. This will stop you from being able to use them.
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