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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.

By MSN Money Partner Feb 10, 2012 5:08PM

This post comes from Amy Fontinelle at partner site Investopedia.

 

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.


Post continues below.

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.

 

More on Investopedia and MSN Money:

36Comments
Feb 11, 2012 7:04AM
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"Destroying" (typo)

HA, What a joke!  Three times in the past 2 years the credit card companies lowered my credit line down to nearly what I owe! All payments were on time and I did not max them out. THEY MAXED MY CARDS OUT AND LOWERED MY CREDIT SCORE, NOT ME! I am canceling them when paid off!  WE AS CONSUMERS NEED TO DO WHAT IS RIGHT FOR OUR OWN FINANCES! THE FINANCIAL INSTITUTIONS GO FROM ONE EXTREME TO THE OTHER! IT IS TIME FOR US AMERICANS TO BEAT THEM AT THEIR OWN GAME--DON'T PAY INTEREST UNLESS YOU HAVE TO!!!!
Feb 10, 2012 11:59PM
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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!

Feb 10, 2012 10:22PM
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I believe that this article is for responsible consumers. It's bad advice for people who are impulsive and  undisciplined when it comes to managing their finances. I know a handful of people who use their credit cards  to get cash back or to exchange the points for gift cards or hotel stays, while paying it all off monthly.  
Feb 11, 2012 12:38AM
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Yeah, right! Look what it has done for the country. I have decided to live my life without any credit. If I didn't have a mortgage I would be debt free. I have decided if I can't pay cash I just won't have it. Unlike the government, I balance my checkbook.
Feb 10, 2012 10:46PM
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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.

Feb 14, 2012 11:40PM
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I've had credit cards for the last 30 years.  I've never been through bankruptcy, paid my bills late, or charged more than I could afford to pay back.   I bought appliances for my home, many thousands of dollars, which I payed off within a years time with no finance charge.  I've gotten various rewards and cash back on my credit cards.  My credit is excellent.  If you don't have a credit card it's because no one will give you one probably because you've messed up big time in the past.  To not have credit cards is idiotic.  To not be able to pay your bills on time means that you are irresponsible and you shouldn't have credit cards or be able to get a loan.  People talk about how irresponsible young people are, and some are, but guess where they learned it from.  This is a country FULL of deadbeats unfortunately.  If  having credit cards is too confusing for you and you're unable to manage your finances and you're an adult, you should be ashamed of yourself.  That's why a lot of people have lost their homes. They bought something they couldn't afford because they let someone tell them that they could instead of figuring for themselves what they could afford to pay for a house and save for a down payment.  Because you're entitled, right?  No.  Because you're too stupid to know better.  Pathetic.
Feb 11, 2012 3:55AM
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I have a large credit limit but I choose to not use it. Someone else stated if they didn't have a mortgage they would be out of debit all together,  ME TOO!.  And I like it like that.  If I want something I will save for it.  That's the way my Dad taught me. I don't like living on the edge so I don't.
Feb 10, 2012 10:09PM
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what an ignorant article--how about ummmmm errrrrrr--------saving money for an emergency and not touching it for any reason----if you take care of your money--there are no emergencies just things that make ya pissed but you can deal with.All this article will do is make or keep you broke and once you are in that position--You are a slave to your job because you have no back up-If you are highly disciplined del free to follow the advice in this article--If you are not--You will be screwed following this advice
Feb 11, 2012 1:05PM
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After reading this I am removing MSN as my homepage. The banks, corporations, politicians and yes even the welfare recipients have a gun at your head! Yes if you are using credit cards you are middle class and they are trying to bury you! Debt, enslavement to jobs you hate, to by things you DO NOT NEED! Wake up if you are not upper class or lower class YOU ARE THE TARGET!
Feb 11, 2012 12:09AM
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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!

Feb 11, 2012 5:58AM
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 Lots of interesting comments.  I think credit should be used only if it has a benefit to the lendee.  And the benefit should not be more credit, rather it should be a path to the lendee's own wealth.  If a card can save one money then by all means use it all you can.  If a card costs and transaction costs cost you money, then why would anyone want to use one?
Feb 11, 2012 7:44AM
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Why NOT, after all our Government keeps Doing it.  HA HA!
Feb 11, 2012 9:09AM
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This is a great idea, for a Fool and their Money are sooooon Parted. This is what Bankrupty Court is all about.
Feb 11, 2012 8:46AM
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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.

Feb 11, 2012 1:49AM
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Many people in America have a hard time handling credit.  This sounds like someone is out to get everyone more and more into debt.
Feb 11, 2012 7:10AM
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This has to be the worst article I've ever read on MSN.  Why you need a higher credit limit?  Are you for real?  How about calling it, "Why You Need To Stay In Debt Servitude Your Whole Life."  Debt robs you of the ability to make choices in life that you could otherwise make if you weren't up to your eyeballs in keeping the banks afloat on interest payments.  I hate credit cards, don't have one, and don't plan on every having one.  I'm in control of my destiny, not some lender who gives me a higher credit limit so they can keep me in bondage.
Feb 11, 2012 10:28AM
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I agree with everything in this well-written article.  I just wish there were something in here I didn't know already.  By the way, why pay cash if you can use a card and get a rebate?  When I go to buy gas today I will get a 5% discount when I use a card, why wouldn't I do that?  Also, a card with a high limit gives you a lot of buying power.  Why walk around with $20,000 in cash if you can carry a card with a $20,000 limit?
Feb 11, 2012 9:59AM
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Where does MSN find these IDIOTS to write these articles?

One week is about lowering limit and paying it down then this article.

 

Feb 10, 2012 10:57PM
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Best to determine what kind of borrowing and credit limit needs YOU need and can handle.  Keeping the credit bureau happy will be easy to do if you will do the first thing first.
Just getting higher limits to look better on paper might be bad advice.
Six  reasons?  Yes,  but not six good reasons.

Feb 14, 2012 9:45PM
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I've had a huge credit limit, and declared bankruptcy if my former years. After going thru that hellish ordeal(s), I have learned that having a good to excellent credit score id very important, especially if you are buying a major appliance, or a house, etc. Paying off your monthly debt on credit cards, along with keeping your open balance between $0 to 1/2 of you credit limit is soooooo important! You will feel better, so won't your creditors. It's a trust issue.
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