What is a credit limit?

Your credit limit is the maximum amount that you can spend on an overdraft or a credit card. When you apply for a new credit card, it is unlikely that you will be informed of its credit limit, but when you receive it, you will then be notified. This lack of information can cause a number of problems regarding transferring your existing balance in case your credit limit is too low to permit it. It is therefore essential that before you apply for a credit card and sign a credit agreement, you ask your card provider what your credit limit is.

Your provider should then be able to offer you an approximation of how high your credit limit is likely to be. Before this, however, they may need to make sure that you are eligible for the credit card by doing a credit check beforehand to ensure that you are able to afford to repay the credit limit amount. If you are merely browsing for a suitable credit card and you’re not yet prepared to apply, inform the credit provider so that your credit file is not left with a mark or use a comparison site with a suitable ‘soft-search’ such as this one at Moneysupermarket.com

How to increase your credit limit

If you’re interested in increasing your credit limit, it is important to determine if you are doing it for the right reasons. If you want to increase your credit limit so that you can treat yourself to expensive items that you wouldn’t normally be able to afford without a credit card, this is a sure-fire way to get your application rejected and generally a bad idea.

In order to get approved for a credit limit increase, you need to prove to your bank that you are responsible with your credit usage. If you make your payments on time without missing any in the past 6 months and your cards aren’t maxed out, this will stand you in good stead for getting approved.

If you are in fact a sensible credit card user, there are a number of ways that you can increase your credit limit.

Apply for a new card

Applying for a new credit card with a higher limit is often the most straightforward way to increase your credit limit, as each card can have a different credit limit depending on its target customers.

It’s easy to choose a new credit card provider and apply for a card, but if you’d like to remain with your current credit card company, you can always apply for a new card with them and transfer a part of your new credit line to your original card. This is only possible if your credit score is above average, but if it is, you can expect a significant increase.

Request an increase for an existing card

If you have a card that you’d like to request an increase on, your credit card provider will review your credit history to ensure that you’re worthy of an increase. This review will be noted on your credit report and can impact your credit score, so make sure that you only request an increase on one card, otherwise, you could run into trouble. In addition to this, other providers will be able to see that you are having your score reviewed which can make you look less financially stable and can affect your chances of getting approved.

Of course, the same is true the other way around – if you have other debts or have applied for too many other forms of credit such as an emergency loan or other personal loan, then these searches will also show on your credit report and may hinder your chances of getting your credit card limit increased.

Don’t request too much of an increase

Applying for an unreasonably high increase can put credit card providers off and can lengthen the application process by a few months. It’s sensible to expect a 10-25% increase, but don’t ask your provider how much they think you should request as they are prohibited from giving this advice to customers.

A 10-25% increase is not set in stone, however, if you have a good credit history, it is possible for you to receive a significantly higher increase and providers will review you on a case-by-case basis. If you do receive a significant increase, however, it’s important to remain practical with how much you spend and not get carried away.

Be patient

Your credit provider will review your account every 6 months on average, so it is possible for your credit limit to increase naturally. If you make your payments on time and, on occasion, pay the monthly balance in full, you may receive periodical limit hikes. Patience is a virtue!

The key to receiving a credit limit increase is to be responsible with your credit, so make sure that you keep on top of your spending, no matter how tempting it may be to go overboard!

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For more on the pros and cons of increasing your credit limit and further advice, visit the Money Advice Service’s page here – https://www.moneyadviceservice.org.uk/en/articles/ways-to-increase-your-credit-limit

A Help to Buy ISA is a savings account that you cannot be taxed on. These special savings accounts pay out a 25% bonus when you withdraw the money as long as it is being used to help pay for your first home.

The Help to Buy ISA scheme ended in November 2019. Anyone who already opened a Help to Buy ISA before this date is free to pay money into it, and will still receive the 25% bonus. However, if you missed the date, you won’t be able to open a new Help to Buy ISA.

How much can you pay into a Help to Buy ISA?

There are strict limitations on the amount of money you can pay into a Help to Buy ISA. In the first month of opening the account, you were able to deposit up to £1,200, but then for every following month you can only deposit a maximum of £200 each month. If you are able to deposit these top-level amounts, it means you’ll save £3,400 in your first year and then £2,400 every year that follows.

What’s the biggest bonus you can get?

When you decide to cash in your Help to Buy ISA, if you’re using it to pay for your first property then you’ll get a 25% bonus on top of the money you’ve saved. There is a cap on this – the most that one person can receive is £3,000 as a bonus payment, which you’d have needed to save £12,000 to qualify for. There’s also a lower limit of a £400 bonus, which you need to save £1,600 to earn.

However, two people can have a Help to Buy ISA if you’re both eligible. This means that any couples looking to buy their first property together could take advantage of a combined £6,000 bonus when they first buy a property.

What can you use the bonus for?

The bonus can only be used to pay part of your mortgage off once you’ve completed the purchase of a property. It has to be within the UK and it can be on a property worth up to £250,000 outside of London, or up to £450,000 within the capital.

The bonus is only paid on completion which means you can’t put it towards the deposit you’re saving to get your mortgage. And it’ll all be handled by your solicitor, with the bonus paid directly into the mortgage, so that you’ve no chance of accidentally using it for other means.

You must claim your bonus before the 1st December 2030. If you don’t, you’ll still have your savings but you won’t be eligible for the extra cash.

Interest and ISA rules

A Help to Buy ISA is just the same as any other ISA and so you will earn interest on the amount of money you save during the duration of the account. Different providers offer different rates so you should make sure to do your research before you commit.

They also fall under the same governance as other ISAs. You’re only able to open one ISA per year, and while you can have multiple ISAs and pay into them all, the most you can pay in across all of your ISAs is £20,000 per year. Anything more will have to go into another form of investment.

Be aware that not every provider will allow you to save money in multiple ISAs, including high street names such as Natwest and Nationwide, so again do your research before making your final decision.

What happens if the property purchase falls through?

If, after saving up all that money and making the leap to buy your first property, your purchase falls through, you don’t need to worry. You can re-open your Help to Buy ISA and you’ll still be eligible for the bonus against the money you’ve paid. You’d just need to get a letter from your solicitor which explained to your provider that the purchase had failed. The ISA will be re-opened and you can then continue to add to it to potentially grow your bonus further.

Alternatives to a Help to Buy ISA

Now that the Help to Buy ISA scheme has stopped accepting new applicants, many people are opting for a Lifetime ISA (referred to commonly as a LISA). These offer a similar 25% tax-free bonus but instead to be used either towards a deposit on your first home or at retirement.

They aren’t as popular, as they have high exit fees if you decide to end the ISA for any reason other than a deposit on your first home or retirement, and you could actually lose some of the money you put into the savings pot. Speak to a financial advisor if you’re not sure on the best alternative to a Help to Buy ISA.