A reader asked:
I have fairly recently got an Aqua card with a limit of £1,900. Credit Karma suggests this is low and a higher limit (with low utilisation) reflects well with lenders. I’ve only just had a credit limit with Aqua so can’t get another one soon.
But I could be added as a secondary cardholder on my partner’s credit card. This is her idea – she has a limit of almost £10k. She never spends on this and nor would I. Would this work?
My balance is £1,500 at the moment but I expect to be able to pay it off fairly quickly – will this help my score or should I keep the balance high for a period?
Will being an additional card holder help?
Getting put on your partner’s credit card will have no effect on your credit score at all.
It won’t even show on your credit record, so no lender that looks at your credit history will see it exists.
Legally she is responsible for the whole credit card debt. As an additional cardholder, you have no liability at all to repay the balance. So it only affects her credit score, not yours.
How much does the credit limit size matter?
Credit Karma suggests [£1900] is low and a higher limit (with low utilisation) reflects well with lenders.
That is correct, but like many “tips” from credit reports, it is pretty vague and not that helpful.
A previous article How much will my credit score change? has some actual numbers from Experian about the size of the possible increase/decrease to your credit score for many different changes in your credit records.
That points out that the size of your limit only has a small effect on your credit score.
Your £1900 limit is easily over the “small limit” level of £250, so you aren’t penalised because of it.
But it’s a very long way from getting to the “high limit” level of £5000! Even if Aqua give you another increase in 6 months it isn’t likely to get you to over £5000. And if it did it would only gain you a tiny 20 points on your credit score.
So trying to get your limit increased isn’t likely to be possible and it wouldn’t help much anyway.
It’s your utilisation that is harming your score
“Utilisation” is how much of your credit limit you are using.
This is an important factor in credit scoring, as the numbers in How much will my credit score change? show.
When your balance is under 30% of your limit, you gain 90 points on your Experian credit score. With a limit of £1900, you need to get your balance down from £1500 to under £570 to get this bonus.
If you can clear the card balance or get down to under £50 you will gain an extra 60 points. And of course you will be saving a lot of money each month that is now going on interest payments.
Pay off the balance quickly!
The boost to your credit score from cutting your utilisation happens almost immediately.
To be exact, it will be reflected the next time the credit card reports to the Credit Reference Agency, which is usually monthly. So you should see it on your next monthly report or the one after.
There is no benefit to your credit score from carrying a higher balance.
And it is only your current utilisation that matters. If it was 90% for a year and has now fallen to 10%, only the current 10% matters.
What else could help?
This reader expects to clear the card quickly. Then he can use the card once a month for something small and repay it in full by direct debit. That will give the biggest boost to his credit score and he pays no interest.
But other people may not be able to clear the card quickly. And may not have a partner with a great credit score who could help with a 0% balance transfer.
One trick that can help here is making a fixed payment to the credit card that is larger than the minimum payment. Say the minimum is £103 – round it up to £110 and set up a standing order to pay that. This small change can have a surprisingly big effect – it stops your minimum dropping a tiny amount each month and you will pay down the debt years faster.
Of course you have to stop using the card completely. Or new spending may increase your balance and that “fixed payment” will be too low – a disaster for your credit score.
Can you stop using the card? If not, then you have much bigger problems than your credit score, as you are getting deeper into debt every month. It would be good to talk to a debt adviser about your options.
Remember lenders don’t use the credit score you see…
You don’t have a single credit score. The three main Credit Reference Agencies (CRAs) – Experian, Equifax and TransUnion – each calculate a different score for you. These scores aren’t the same as many lenders only report to one or two CRAs, not all of them.
And lenders don’t use any of these scores! They use their own.
So people can focus too much on what their credit score is. A small change to the score you see may make little difference to anything real in your life.