Why you should up your credit limit
It's not just about how much money you need to borrow. Here are 6 reasons you should ask for a higher limit on your credit cards.
Increasing your credit limit just means giving yourself the opportunity to spend beyond your means, right? Not necessarily. Increasing your credit limit can have a number of upsides if you manage your credit wisely.
Here are six things a higher credit limit does for you:
It lowers your credit utilization and increases your credit scores. The FICO credit-scoring model will ding your credit scores if the amount of credit you've used is close to the total amount of credit available to you. That's because it considers you to be at risk of maxing out your cards and having trouble making future payments. You might know that these risks don't actually apply to you, but that's how the scoring model works.
If you have a $2,000 credit limit and you regularly end up with a monthly bill of around $1,800, you're using 90% of your available credit. Raising your credit limit will reduce that percentage and should improve your credit scores.
It makes it cheaper and easier to get loans and additional credit. When you're not using almost all of your available credit, you appear to be financially responsible to the credit bureaus, and your credit scores should increase. If your credit scores are higher, you will have a better chance of getting approved for a credit card, car loan or mortgage.
You'll also have a better chance of getting a lower interest rate, since your credit scores determine whether you'll be offered the best available rate or a higher, risk-adjusted rate.
It helps in an emergency. Having a credit limit well in excess of your usual spending amount gives you a resource if you have a genuine emergency that you can't pay for with cash. Say you're traveling and you need to change your plans and return home immediately, for example. It probably won't be cheap to change your plane ticket, and it's easier to pay for a plane ticket with a credit card.
It increases your rewards. If you consistently pay off your balance in full and on time but you're not putting all of your expenses on your credit card, it might be time to start. Having a higher credit limit can help you do that. The conventional wisdom says that you shouldn't charge everyday expenses such as groceries and gas to your credit card, but that advice only applies if you're carrying a balance -- it's designed to help you avoid making a bad problem worse.
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If you never carry a credit card balance, paying for recurring expenses on your credit cards won't cost you anything and can help you earn more rewards. Those rewards can actually reduce your spending in other areas by helping you pay for vacations, gifts, clothes and nights out.
It lets you make large purchases efficiently. You already know that using your credit card to pay for large purchases is convenient and can help you rack up rewards. What you might not know is that your credit card likely includes a number of consumer protections that can come to your rescue if there is a problem with your purchase. MasterCard protections, for example, include extended warranties, price protection and coverage for damaged or stolen items. Visa and American Express offer similar benefits. Check your credit card agreement to see what protections apply to your cards.
It helps you avoid credit score dings. One way to get access to more credit is to get another credit card, but increasing your limit on an existing card might be a better option. According to FICO, opening a new credit card can ding your scores. When you open a new account, it shortens the length of your credit history, and a longer history often means a better score. The age of your oldest account, the age of your newest account and the average age of all your accounts are factored into the length of your credit history, and this metric impacts about 15% of your scores.
The bottom line
If you know you're likely to spend up to your credit limit no matter how high it is, that major drawback will outweigh these benefits of increasing your credit limit. Otherwise, consider requesting an increase. It's usually as simple as sending an email to customer service.
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Its better to stay out of debt and not be concerned about increasing your credit limit. If you use a credit card, pay it off in full every month!
I'm sorry, but when I was in the loan business, we looked carefully at anyone who had high limits and hadn't used them. We would only loan to people whose payment would be 25% or less of their gross monthly income and total bills no more that 33% of gross monthly income. We felt that was the sweet spot for people staying out of trouble and paying on time. If you had high credit limits we knew you could go deep into debt if you used those limits after you closed our loan and there would go our loan down the drain, because suddenly you were paying pills that were 1/2 or more of your income. That happened sometimes.
It could be one of the major reasons we have the housing crisis. People were allowed to borrow much more than they could comfortably afford to pay. I raised one very smart kid. She was told her income could cover an $85k home. She refused to buy anything that was more than $55k because that kept her payment at exactly what she was paying for an apartment.
I had a Diamond preferred card with an unlimited credit line but I would have to pay the balance down to $7,000 for each cycle. I loved that card. Then the company arbitrarily changed the card and raised the interest rate. I never owed a balance and I always paid the entire bill every month. I let them know I was not happy about their changes. I did keep the new card.
Another one of the card companies talked to me when I called them about the new card they sent me. They asked if they could do anything for me. I said lower the interest rate. They denied that. Then I asked to raise the credit limit. They asked me questions and were overjoyed to jump my limit from $4,500 to $6,000. I thanked them and will NEVER use the total limit. I always pay my balance and I am thankful I am able to do that. I have complete self control and the funds to cover my expenses.
Other people are not as fortunate. If you have a balance of $1,800 on a $2,000 card then you should be busting **** to pay that card off. Credit card interest rates are OUTRAGEOUS. Pay off the balances people!
Interesting post goingdownthehill. Been trying to wrap your arms around the English language and written word long?
Anyway, all they are saying is that by having more available credit there are several advantages on paper. In reality, one still has to be diligent about paying the statement off every month. Unless you have a card that has a fee, the positive on your credit scores, percent to available credit, future credit approval, lower cost of credit (% APR) etc,etc, this all comes for free.
No where in the article are they telling you to go spend like pirates and rack up debt. You people complaining need to open your eyes to the big picture point this article is making and take off the tunnel vision glasses that are obviously constructed out of your own reckless spending, the inability to pay it all off and thus your ridiculous fear of credit.
CREDIT IS OUR FRIEND, SCARE-DEE CATS.
Where does MSN find these IDIOTS to write these articles?
One week is about lowering limit and paying it down then this article.
Just getting higher limits to look better on paper might be bad advice.
Six reasons? Yes, but not six good reasons.
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