Raising a credit card’s limit is just a way to spend more than you can afford, right? Not always. In fact, increasing the limit can have a number of upsides if you manage your credit wisely.
For instance, it can assist you in efficiently handling large purchases, repairing your credit, or using credit to cover an unexpected expense. A higher credit limit can even boost your credit score.
In fact, there are at least six reasons why it can be good to increase your credit limit.
The answer is not a simple yes or no It depends on your spending habits and your overall financial situation,
Here’s a breakdown of the pros and cons of a credit limit increase:
Pros:
- Lower credit utilization ratio: This is the percentage of your available credit that you’re actually using. A lower credit utilization ratio can help improve your credit score.
- More purchasing power: This can be helpful if you have large purchases planned, such as a down payment on a house or a new car.
- Better terms in the future: A higher credit limit can lead to better interest rates and terms on loans and credit cards in the future.
Cons:
- Increased temptation to overspend: This is the biggest risk of a credit limit increase. If you’re not careful, you could easily rack up debt that you can’t afford to repay.
- Higher minimum payments: With a higher credit limit, your minimum payments will also be higher. This could make it more difficult to manage your finances.
- Potential for fraud: If your credit card is lost or stolen, you’ll be liable for a larger amount of debt with a higher credit limit.
Here are some things to consider before accepting a credit limit increase:
- Do you have a good track record of managing your credit cards responsibly? If so, then a credit limit increase may be a good thing for you.
- Do you have a budget and are you confident that you can stick to it? If not, then you may want to think twice before accepting a credit limit increase.
- Do you have any large purchases planned in the near future? If so, then a credit limit increase may be helpful.
- Are you comfortable with the increased risk of fraud? If not, then you may want to consider keeping your credit limit lower.
Ultimately the decision of whether or not to accept a credit limit increase is a personal one. Weigh the pros and cons carefully before making a decision.
Here are some additional tips for managing your credit limit:
- Only use your credit card for purchases that you can afford to pay off right away.
- Pay your credit card bill in full and on time each month.
- Monitor your credit utilization ratio and keep it below 30%.
- Review your credit card statements regularly for any errors or fraudulent activity.
By following these tips, you can help ensure that your credit limit increase is a positive thing for you.
Here are some additional resources that you may find helpful:
- Bankrate: Why did my credit card issuer just increase my credit limit?
- Investopedia: 6 Benefits of Increasing Your Credit Limit
I’m here to help you make the best decisions for your financial future!
Helps You Earn More Rewards
If you routinely pay off your credit card debt in full and on schedule but don’t use it for all of your purchases, it might be time to start Raising your credit limit can assist you in doing so and boost the benefits you receive, like travel miles, points, or cash back. The common belief is that you shouldn’t use your credit card for routine purchases like groceries and gas. However, this advice only applies if you have a balance because it’s meant to keep you from making an already bad situation worse.
However, if you never have a balance on your credit cards, using them to pay for regular expenses won’t cost you anything and may even increase your reward points. Because those rewards help you pay for gifts, clothes, nights out, vacations, and other expenses, they can actually help you spend less elsewhere.
Lets You Make Large Purchases Efficiently
As you are already aware, using a credit card to make large purchases is easy and can earn you rewards. You may be surprised to learn that there are probably a number of consumer protections on your credit card that can help you in the event that something goes wrong with your purchase. For example, Mastercard’s protections include extended warranties, price protection, and coverage for damaged or stolen items. American Express offers similar benefits.
Check your credit card agreement to see what protections and restrictions apply to your cards.
Why Credit Card Limit Increases May Be Bad (And Why Banks Keep Giving Them To You)
FAQ
Is it good to accept a credit limit increase?
What does it mean if your credit limit increases?
How often should you request a credit limit increase?
Is it better to get a new credit card or increase limit?
Should you increase your credit limit?
One solution is to ask your card issuer for a credit limit increase. But like most credit card features, a limit boost comes with some downsides. Here’s how to sort out the pros and the cons. A larger credit line can grant you more flexibility with your finances, and it might just help your credit score, too.
Does a higher credit limit affect your credit score?
Regardless of whether your credit card issuer performs a hard or soft credit check (or both), when you ask for a higher credit limit, the impact those inquiries have on your credit score is typically negligible in the long run.
What are the benefits of a higher credit limit?
The top benefit of a higher credit limit is the ability to spend more on a credit card, especially if you started with a relatively low limit. By charging more to your card, you have the opportunity to earn additional rewards points or cash back as well as take advantage of included benefits like extended warranties or cellphone insurance.
What are the downsides of a credit limit increase?
Now for the downsides of accepting a credit limit increase. This may seem obvious, but the biggest downside to a higher limit is the risk of accumulating more debt. The more available credit you have, the more debt you could potentially rack up. If you end up carrying a balance or only paying the minimum each month, you will pay a heavy price.