The Finance Blogger


Credit Card Limit Increase

Credit Card Limit IncreaseCredit card limit increases are often automatically added to your account. How often have you received an automatic increase on your credit card limit without being asked if you wanted it? You did not apply for a credit card limit increase and this notice just showed up in the mail one day with your name on it and your account with a new credit limit. I used to think these things were a bit scary, but now after listening to CNN, I am less concerned about my credit rating and more concerned about my ability to stay within the limits of the old level. With more credit, will I charge to the limit or stay where I used to be and pay it off each month?

Credit Card Limit Increases Actually Help Your Credit Rating

CNN provided the following advice:  when a credit card company increases your credit card limit, it actually is a good thing. Your credit rating or at least one third of the rating is determined by the percentage of the limit that you actually use on your credit card. For example if your current limit is $5000 on your credit card and you routinely spend up to $2500, then you are only using 50% of your limit, which is pretty good. Now if they increase the limit from $5000 to $10000 and you still only routinely spend $2500, then you have lowered your utilization from 50% to 25% which is a significant improvement.

Can you Maintain the Discipline

Now there is a concern here that everyone should be aware of and is probably obvious to everyone. Can you stay at the present level or will you gradually over time move up to the $5000 level or worse to the maximum allowed on the card? If you do, your credit limit is going to tank and if you miss a payment or two, then it really will tank. So provided that you do not run the credit card up to its limit and you pay it off every month your credit rating should remain in great shape. Amazing

Managing Your Credit Card Limits

Most people have multiple credit cards. Some are loyalty cards, some are backup cards etc. Personally the writer carries two loyalty type credit cards. One credit card that we use every day for a variety of purchases. We have a second card for backup purposes. It is just in case the first main credit card is compromised while we are traveling. The loyalty cards have both increased the limits without being asked. The remaining cards have maintained the same limits at my request for many years.

We took this action for one reason and one reason only. We want to limit how much we can charge to any credit card for personal self-discipline reasons. Our family does not want the credit card limit increases to be automatic. We really do not need the extra limit and we want the personal self-control.

We pay our credit card balances every month so there is no ongoing balance. Which is another reason the credit card limit increases have been automatic.

The Real Danger of Credit Card Limit Increases

Over the years many people have found that they have charged their credit cards up to the limit. Then have had some difficulty in repaying the balance in full. Regardless of the reason you charge the credit card to its limit. The last thing you need at this stage is to have the limit increased. Without will power, most people are just going to keep charging. Before they know it will reach this new limit.

Your credit rating might have initially increase as per the above statement. If you miss a payment or cannot repay the balance owing quickly, your credit limit is going to sink like a stone. Before you know it, the banks will not talk to you. You will find it difficult to get a loan from many places at interest rates that are reasonable. Next thing you know you are considered a bad credit risk and cannot get any credit.

Credit card limit increases are ok sometimes. However you must manage this credit limit very carefully. Avoid over using these credit facilities as much as possible. If you do, as a consumer you will be able to maintain your credit rating. You will also be able to get that loan when you really need it at an interest rate that is very competitive.

 

 

 

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One Response to “Credit Card Limit Increase”

  1. it seems weird, but i heard this too that a credit card limit increase could actually increase your credit rating as well. I have three cards all with zero balance. we use them only occasionally so i should have a fantastic credit card rating.

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