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Increasing Your Credit Limit
 Jul 01, 2009

Should you increase your credit limit? This article has information on reasons you should increase your credit limit, reasons you should not increase your credit limit, and how you can increase your credit limit. Keep reading for more on increasing your credit limit.

Should You Increase Your Credit Limit?

Right now, with the recession and other issues, there has been an increased emphasis on credit. Credit affects numerous aspects of your financial life, so it is vital that you do what you can to improve your score and try to pump up your financial reputation. One way you can do this is with a judicial credit line increase.

Reasons you should increase your credit limit

Your credit limit is the maximum amount a lender will let you borrow. For instance, your credit card may have a limit of $3,000. This means that you can borrow any amount using your credit account up to $3,000. If you have multiple accounts, your credit limit is the sum of all of your available credit. So, if you have three credit cards, with limits of $3,000, $2,500 and $2,800, your total credit limit is $8,300. When deciding whether or not to increase your credit limit, it is vital that you understand how your use of available credit affects your credit score.

First of all, part of your credit score depends on how much of your available credit you are using. It is best for your credit score if you keep your usage to 30% or less (in our example: $2,490). Things start to get really negative for your credit score if you surpass 50% of your available credit. The close you are to your credit limit, the more negative your score. While this applies to your collective credit usage, your credit score is also influenced to a degree by the status of your individual accounts. If one of your accounts is near its max, then you might want to consider either paying it down or applying for a higher credit limit in order to give yourself some breathing space.

Indeed, one of the main reasons to apply for an increase to your credit limit is to help your credit score if you have a reasonably high amount of debt. This way, you don’t appear to be using up as much of what you have available. Another reason to consider raising your credit limit is if you know that you will be using your credit card to make a major purchase in the near future. This is a popular tactic for those with rewards cards. It is best if you pay off your purchase as soon as possible, however, so that you get the reward points – and not the interest payments.

Reasons you should not increase your credit limit

Even though it can be beneficial to increase your credit limit, it is not always a good idea. In some cases, if you have a lot of available credit, it can actually backfire. If your available credit would take up a large portion of your income if it were all utilized, that can be cause for reducing your credit score. Another problem is if you do not use the credit you already have. The best results for your credit score come when you make regular purchases – of between 30% and 50% of your available limit – using credit and then paying it down. If you do not use the credit you already have, applying for more credit is pointless. Besides, if you have all that credit that you are not using, your credit score will suffer. The point of a credit history is to be building it by using credit.

How you can increase your credit limit

If you decide that you do want an increase to your credit limit, you will have to be careful. Consider which card to approach first. This should be a card where you are currently carrying a balance, but one where you are using less than 50% of what is available. Prior to this, you should have been making payments of substantially more than the minimum, paying off the entire balance if possible. Here are some other things to keep in mind as you try to increase your credit limit:

  • You should use your card on a regular basis.
  • Your account should be in good standing (no late payments, or over the limit problems).
  • Make sure you have a reasonably decent credit score.
  • One or two months of the year, pay interest charges. Carry a moderately small balance to the next month, so that you have to pay interest.

Whether or not you increase your credit limit is up to you. However, you should carefully consider the consequences, and do what is most likely to help you improve your credit score and your financial situation.

Related Article: Decreasing Your Credit Limit >>

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