Nationwide, the world's largest building society with over 16 million members, has issued a warning on its website for anyone considering obtaining or using a credit card this year. The building society advises that before increasing your credit card limit, several factors should be considered, including the repayment period and associated risks. The limit will depend on personal circumstances such as income, expenses, and credit history.
Credit Limit Increase Considerations
Nationwide reassures customers: "We won’t increase your credit limit unless you ask us to. A higher credit limit could give you more flexibility. However, it may increase the risk of you taking on too much debt." The statement adds: "This could cost you more overall, and take longer to pay off your borrowing. Consider carefully if you need a higher limit."
Customers can apply to increase or decrease their credit card limit. If accepted, the new limit is applied immediately. However, after a limit change, you must wait six months before applying for another increase. You can reduce your limit at any time.
What is a Credit Card?
Nationwide explains that a credit card is a convenient way to manage money, allowing you to pay for goods and services on credit and spread the cost over time. When using a credit card, you borrow money from the card issuer, typically a financial organization like a bank or building society.
Credit Card vs. Loan
Both credit cards and loans are forms of borrowing, but a credit card provides a spending limit you can use as needed. You can pay the full balance monthly or gradually, though interest may apply if not paid in full, unless an interest-free offer is in place. In contrast, a loan gives a fixed amount upfront, repaid in regular installments over a set period, usually with interest.
Choosing the Right Credit Card
Nationwide urges people to consider why they want a credit card and how they will use it, as different cards have different features. Popular reasons include reducing existing debt costs, spreading large purchases, commission-free worldwide purchases, improving credit scores, clearing debt while spending, and receiving cashback and rewards. "Once you decide on the purpose, you can compare offers," the building society suggests.
