Why You Should Raise Your Credit Limit

Why You Should Raise Your Credit LimitIncreasing your credit limit will provide you with the ability to spend beyond your means, right? Wrong! If you do it for this reason, you’ll almost certainly end up owning a lot of money. In the following sections, we’ll show you the right reasons for raising your credit limit.

It Increases Your Credit Score

This is perhaps the best benefit to raising your credit limit. One factor in your credit score is determined by comparing how much money you owe versus how much credit you have access to. For example, let’s pretend that you have a credit card with a $2,000 spending limit. You currently owe $200 on it. This means that your debt-to-credit ratio is $200-to-$2,000, which is pretty good. It’s when you start maxing out your credit cards that you start getting into trouble. If you owe more money than you have available on credit, then your credit score is going to drop – guaranteed.

It’s Easier to Get Loans and Additional Lines of Credit

This reason sort of piggybacks on the previous one: by increasing your credit limit responsibly (not overspending), you’ll be able to get loans and additional lines of credit much more easily. Are you trying to apply for a mortgage or car loan? Then this will be much easier when you’ve got a long line of unused credit under your belt. Again, if you live above your means and constantly max out your credit cards, it’s going to be extremely difficult to qualify for any additional lines of credit.

Perfect for Emergencies

Increasing your credit limit doesn’t mean that you should go on a spending spree. Responsible people increasing their credit limit so that they can remain protected in the unforeseen case of an emergency. For instance, let’s say that you’re traveling and you miss your flight back home. Having that extra line of credit will give you the flexibility to make arrangements so that you can still get to your final destination on time (and gives you enough funds to stay at a hotel if you need to). But again, these are emergencies – not “fun” spending.

It Increases Your Rewards

While conventional wisdom suggests not to spend a large portion of your credit on day-to-day expenses, you can make an exception for rewards-based credit cards. With these types of credit cards, they pay YOU for every x-amount of dollars that you spend within a specific timeframe. Instead of spending cash on certain purchases, you can pay with your credit card to earn rewards. So if you can increase your credit limit, you’ll essentially be earning more “points” per quarter, which eventually convert to spendable cash. Just make sure you pay off your balance in full each month!

Helps Avoid Dings On Your Credit Score

Let’s say that you’d like access to more credit. Should you A) Apply for a new credit card, or B) Increase your limit on an existing card? Expert recommends doing the latter. In accordance with FICO regulations, you may receive a slight “ding” for opening up a new line of credit, whereas you won’t run into any problems by increasing an existing a current line of credit.

The Bottom Line

The key thing to remember here is this: if your sole reason for raising your credit limit is to “buy more stuff,” then you’re already on a fast-track to financial trouble. Do the responsible thing and increase your line of credit for the reasons mentioned above, and you should be just fine.

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