Top 7 Benefits Of Increasing Your Credit Limit And Why
What Is A Credit Limit?
A credit limit is the maximum amount of money a person can borrow on their credit card or other lines of credit. The credit limit is determined by the lender and is based on a person’s credit score, income, and other financial factors. The higher the credit limit, the more purchasing power a person has, but it’s important to remember that a higher credit limit doesn’t mean that the person can afford to make bigger purchases. A credit card limit can be increased if the lender determines that the person is a responsible borrower and can handle the new credit. It’s crucial to be mindful of the credit limit to avoid overspending and accruing high-interest fees. In short, the credit limit is the maximum amount of money a person can borrow from a lender.
What are the advantages offered by a higher credit limit?
Having a higher credit limit for your credit card can bring many benefits. A higher credit limit means you can spend more on purchases without reaching the limit on your credit card. It can also lead to an increase in your credit score since you are utilizing a lower percentage of your available credit. High credit limit also gives you the flexibility to make big purchases, such as purchasing a car or paying for a family vacation, without worrying about your credit card limit. Receiving a credit limit increase can improve your credit by increasing the amount of available credit you have, which can lower your credit utilization ratio. A higher credit score and credit limit can also lead to better loan options and lower interest rates in the future. In short, having a higher credit limit can provide financial flexibility and help improve your credit standing.
7 Benefits of Increasing Your Credit Limit
1. Lowers Your Credit Utilization
Increasing credit limit can lower credit utilization by increasing the amount of available credit. Credit utilization is the percentage of your total available credit that you are currently using. When you have a higher credit limit, your total available credit increases, and therefore your credit utilization decreases.
For example, let’s say you have a credit card with a $5,000 credit limit and a balance of $2,000. Your credit utilization would be 40%. But if your credit limit is increased to $10,000, your credit utilization would decrease to 20% even if you maintain the same balance of $2,000.
It can boost your credit score since credit utilization is one of the factors that affect your credit score. A lower credit utilization indicates to lenders that you are managing your credit responsibly.
2. Helps in an Emergency
In times of emergency, a higher limit can be a lifesaver. When unexpected expenses arise, such as major car repairs or medical bills, having a higher credit limit can help to provide the necessary funds to cover the costs. It can also serve as a backup plan in case of job loss or other financial hardships. With an increased limit, individuals have a greater financial cushion to fall back on, which can ease stress and anxiety during tough times.
3. Helps You Earn More Rewards
Having a higher credit limit can certainly help you to earn more rewards when using your credit card. The reason for this is that many reward programs offer bonuses when you spend a certain amount of money within a certain timeframe. So, if you have a higher credit limit, you can easily reach those spending goals and unlock more reward points. Additionally, raising your credit limit often comes with access to more premium rewards programs, which can provide greater benefits such as travel perks or cashback rewards.
4. Lets You Make Large Purchases Efficiently
Having a higher credit limit can make it easier to make large purchases efficiently as opposed to having a low credit limit, you have more purchasing power, and you won’t have to worry about maxing out your credit card or applying for additional credit to cover the cost of expensive purchases. This is especially helpful when making purchases such as buying a car or taking a big vacation that may require a large upfront payment. In addition, having a higher credit limit may also improve your credit score, as it demonstrates that you are a responsible borrower who is able to handle larger amounts of credit.
5. Multiple Credit Cards are not required
Having one high limit card instead of multiple lower limit cards can also simplify credit management and reduce the risk of overspending. Therefore, while having multiple credit cards can be useful in some situations, it is cumbersome to track and pay your bills on multiple cards.
6. Enhance your credit score
Any credit issue such as late payment, unable to pay, or overspending on a person’s credit limit is viewed as lower creditworthiness by the lender. Therefore getting a higher limit can also help you enhance your credit score by not hitting your credit limit, which can lead to over-limit fees and potential damage to your credit history.
7. Cheaper and Easier to Get Loans and Additional Credit
Increasing your credit limit lowers your credit utilization and improves your credit scores. With improved credit scores, your chances of getting approved for new credit, such as a business loan will also increase.
Cons Of Increasing Your Credit Card Limit
While having a higher credit limit may seem appealing, it is important to maintain prudence in spending. Excessive expenses may lead to overspending and accumulation of debt, which can be difficult to pay off. It is essential to keep your spending in check and make sure you can pay off your debt balance every month to avoid interest charges and potential damage to your credit score. Setting a budget, tracking your expenses, and only using credit for necessary or planned purchases can help you stay in control of your finances.
