Why would you want a credit limit increase?
So let’s say you have a credit card and it’s raising your credit score, but slower than you’d like. Is there anything you can do?
Actually, yes there is! Because your credit score is, in part, calculated by your debt ratio, increasing your credit limit while continuing to charge the same amount to your card will give you a better ratio and help to rase your credit score that much faster.
Here are just a few great reasons that a credit line increase is great news for your financial life.
There are three major reasons why you may want to increase your credit limit:
You want to obtain more credit for making purchases.
If your limit is too low to cover a large planned expense, you may want to increase it to take advantage of credit card rewards earned on that purchase. Ideally, you’ll have the money in the bank to pay this off before accruing interest. Or perhaps you lost your job and need a buffer to pay your bills. I’d recommend using 0% introductory APR credit cards instead of increasing your existing card’s limit. Here’s a list of our favorite 0% offers.
You want to obtain more credit in case of emergency.
While you can’t use your credit card for every rainy day, it can come in handy for many emergencies. A credit card can pay for car repairs, necessary items that need to be replaced or last-minute plane tickets home. The higher your credit limit, the more you have available for any emergencies that may arise.
You want to lower your credit utilization.
Your credit score is made up of five factors: payment history (35%), amounts owed (30%), length of credit history (15%), types of credit in use (10%) and new credit (10%). The second factor, amounts owed, is made up mostly of something called “credit utilization.” Credit utilization is your balance in comparison to your limit. So if you have a credit limit of $10,000, and a balance of $3,500, your credit utilization is 35%. There are two ways to lower this ratio — paying down your balance or increasing your limit. If you were to increase your credit limit to $12,500, and still had a balance of $3,500, your utilization would drop to 28%.
– via NerdWallet
It’s important to remember that a credit increase does not mean a spending increase. The goal here is to lower the percentage of credit that you’re using, not the amount of money that you’re spending.
There are a few other warnings to keep in mind with a credit increase. At the end of the day, this won’t endanger your credit score – unless you let it.
With some careful spending and some real self control, you can get the best of both worlds!
So is there any reason to even hesitate at the idea of a higher credit limit? There might be, if a higher limit will tempt you to spend more than you need to (or spend currently). A little self-knowledge can tell you if this is a danger.
Another time you may want to choose a lower credit limit is if you add an authorized user to your card. Adding someone to your account gives them access to your entire credit line. If you intend to give your child, or a significant other, access to your card, it might be wise to limit the damage that can be done if he or she doesn’t handle it as responsibly as you hoped. (You can also set up credit alerts to let you know when the card is used.)
Finally, if you co-sign a card application, be aware that this card will affect your credit as if it were your own. That means the credit limit, any late payments, etc., could affect your score. And, unless the terms and agreements say otherwise, the credit limit can be changed without your knowledge or approval if the primary borrower is at least 21 years old.
– via Credit.com
Have you ever asked for a credit line increase? Do you think it might be a good idea for your current financial situation?