A higher credit card limit gives you more freedom, but that’s not the only reason to increase yours.
If you apply for a credit card when you have a low income and limited credit history, you will end up with a low credit limit. And that makes sense. A credit card issuer won’t give you a $10,000 limit if you’ve never had a credit card before or if you don’t earn enough to pay such high bills.
But as your credit history strengthens and your income increases, you can ask your card issuer to increase your limit. Maybe you’ll jump from a $2,000 limit to a $3,000 limit, or take a bigger jump from $4,000 to $8,000. Regardless of the type of increase in your credit limit, it can work to your advantage.
Here’s why it pays to make that call and ask for that boost.
1. A higher credit limit could increase your credit score
Credit usage is an important factor in calculating your credit score. Usage shows how much available credit you are using at a time. To keep your credit score in healthy territory, it needs to be 30% or lower.
If you have a balance of $4,000 and a credit limit of $10,000, you’re at 40%, which isn’t good. But if you increase your credit card limit to $12,000, you’ll be back in favor (30%).
2. A higher credit limit gives you more options to pay for emergency expenses
It’s a good idea to have an emergency fund with enough money to cover at least three months of essential expenses. That way, if an unexpected bill pops up or you lose your job, you’ll have savings to get by and won’t rack up tons of credit card debt due to a series of bad luck.
But not everyone has an emergency fund. If you don’t, a higher credit card limit gives you more options to charge for unexpected and unavoidable expenses. And while that’s less ideal than tapping into a savings account, it’s an important lifeline to have.
Be careful when increasing your credit limit
If you earn a high enough income and have a decent enough credit score to warrant an increase in your credit limit, a call to your credit card issuer will usually be enough to get it.
But beware, a higher credit card limit can open the door to more spending. And if you fall into this trap, you will find yourself not only to injure your credit score, but also by giving you less flexibility to pay for emergencies when they arise.
A good bet is to increase your credit card limit, but pretend that never happened. This way, you’ll be less likely to overdo it.
If you really don’t trust yourself not to max out your credit card once your spending limit increases, don’t call your issuer. But chances are that if you’re that irresponsible with your credit card use, you won’t be able to qualify for a raise anyway.
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