You hear a lot about credit score, and the importance of them, but sometimes people can only get approved for cards with low credit limit. So, it’s worth asking the question as to whether low limit credit cards will help your credit score, or if it’s only worth getting a credit card if it has a pretty high limit?
Some people might not see much use to low limit credit cards, but the answer is that yes, they can help your credit even if the limit is low.
For one, they can help you to establish a credit history. 15% of your credit score comes from the length of your credit history, so it helps to have a history started as early as possible. When you don’t have a credit history, sometimes it is only possible to get a card that has a low limit, because that is all that you will be given. In these cases (as always, with the caveat that you use credit responsibly), a low credit limit is better than no credit limit. No matter the limit, it will help you to establish credit history, which will help future creditors see that you are trustworthy, and able to handle some level of credit.
The other way that it can help is by improving your credit utilization rate (which is a big determinant in your credit score), or the balance you are carrying compared to your total limit. In this case, even a low credit limit will help that, because it means the amount that you could borrow goes up. Again, as long as you are not actually using all of your credit (which is always a bad idea), even a low limit credit card will increase your total limit, lowering your utilization, and helping your credit score.
Let’s say that you have a balance of $500 from month to month, meaning that is the amount that you owe on your credit card. If you have one credit card with a low limit of $1,000, that will make your utilization rate 50% (500/1000). However, if you have two credit cards with a limit of $1,000 each, that will improve your utilization to 25% (500/2000). That will help your score, because creditors will not see you as a big risk to default and not be able to pay your bills. You should always work to have as low of a credit utilization rate as possible, with it ideally coming in at under ten percent.
While you are certainly able to increase your credit limit in some cases, even having a card with a limit will help your credit. It will help you to establish your credit history, which is an important part of your credit. It will also allow you to use a lower percentage of your available credit, which always looks good and helps to improve your credit. For these reasons, even low limit credit cards can be a big help for your credit.