|CREDIT INCREASES - GOOD OR BAD?|
|Posted on: Sep. 02, 2017 in Credit|
Having the credit you need when you need to use it is important. So, when your credit card company raises your spending limit, it can feel like a dream come true. Of course, if you’ve had debt problems in the past and know that the more you can spend the more you will spend, maybe that higher limit isn’t such a good thing. The fact is, if you’ve got a high enough credit score and a good history with a particular card issuer, they may periodically raise your limit, even when you don’t ask for it.
Is a higher limit a good thing or a bad thing? The answer isn’t that simple.
First, the good news: If you were offered a credit limit increase without asking for it, your card company thinks you’re good for it. Take it as a compliment! But that limit increase isn’t just a kind gesture. They also want you to spend more because that’s how they make their money.
If you didn’t ask for it, you may be tempted to ask the card company to lower your limit. But don’t be hasty – this increase can actually help you. The more available credit you have, the better your credit score will be. Let’s say you have a card with a $10,000 limit. If you use $5,000, you’ll be using 50% of your available credit. Experts recommend that you use no more than 30% of your available credit and they suggest using only 10% is better. So, if your card raises your limit to $20,000 and you still have that $5,000 balance, now you’re only utilizing 25%. The increased limit makes your credit usage look better.
The other reason not to ask for a reduction is that if you find you need the extra credit later, you may not get it. You’re better off keeping the higher limit and not using it. Just remember that even though the card company believes you can handle the increase, you know yourself best. Set your own personal limit and make it no more than 30% of the cards overall limit. If you’re tempted to spend, leave the card at home or lock it up so you have less access. This way the credit will be there if you need it and it will help your credit score, but it won’t be as readily available for you to max it out!
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