Credit limit increases can be a double-edged sword. They can provide an opportunity for cardholders to make larger purchases with their credit card, earn more points or cash back, and improve their credit score. However, they can also lead to overspending and potentially damage a consumer’s credit score. It all depends on how you use it.
Many people are unaware that they can even request a credit limit increase.
Pros
- Higher limit with similar dollar usage means less utilization percentage, and you can stop damaging your credit score
- Opportunity to make larger purchases with your credit card instead of debit card or cash
- Allows users to get points/cash back on these purchases
It is important to note, however, that these benefits are only realized if the consumer is responsible with their spending, and paying their bill in full and on time.
Cons
- Can lead to overspending
- Some users see the increase in limit as a justification for spending more money that they don’t have
- Can sometimes lead to a hard inquiry on credit report and damage your score
- Many times when credit limits are requested, the institution performs a hard inquiry on your credit report
- It’s also important to note that in most cases, you need to wait anywhere from 90 days, to 6 months after opening a card to request a credit limit increase.
A study by the Consumer Financial Protection Bureau found that consumers with higher credit limits were more likely to carry a balance and pay more in interest charges.
Decision Time
When considering a credit limit increase, it is important to evaluate whether it is something that you need and will benefit from. Look back on your credit history, have you always paid in full and on time? Are you responsible with your spending? Do you actually need an increase, or can you survive without one?
Conclusion
In conclusion, credit limit increases can provide benefits such as the opportunity to make larger purchases and improve your credit score. However, it is important to weigh the potential cons of overspending and a hard inquiry before requesting an increase. It’s always a good idea to be aware of the possible consequences of increasing your credit limit and weigh the pros and cons before making a decision.