6 benefits of increasing your credit limit

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Raising your credit limit is simply giving yourself the opportunity to spend beyond your means, right? Not necessarily. Increasing your credit limit can have a number of benefits if you manage your credit wisely.

SEE: 4 Common Credit Card Misconceptions

Reduces your use of credit and increases your credit score

The FICO credit scoring model will rate your credit score if the amount of credit you have used is close to the total amount of credit you have. Indeed, it considers that you are likely to max out your cards and have difficulty making future payments. You may know that these risks don’t actually apply to you, but that’s how the scoring model works.

If you have a credit limit of $2,000 and regularly end up with a monthly bill of around $1,800, you are using 90% of your available credit. Increasing your credit limit will reduce this percentage and should improve your credit score.

Cheaper and easier to get additional loans and credits

When you don’t use nearly all of your available credit, you appear to be financially responsible to the credit bureaus and your credit score should go up. If your credit score is higher, you’ll be more likely to be approved for a credit card, car loan, or mortgage in the future. You’ll also have a better chance of getting a lower interest rate, since your credit score determines whether you’ll be offered the best rate available or a higher risk-adjusted rate. (For additional reading, check out 6 Benefits of Increasing Your Credit Limit.)

Help in case of emergency

Having a credit limit well above your usual spending amount gives you a resource if you have a real emergency that you can’t pay with cash. Suppose you are traveling and you need to change your plans and go home immediately – it probably won’t be cheap to change your plane ticket, and it’s easier to pay for a plane ticket with a credit card.

Increases your rewards

If you regularly pay off your balance in full and on time, but don’t put all your expenses on your credit card, it might be time to start. Having a higher credit limit can help you do that. Conventional wisdom says you shouldn’t charge everyday expenses like groceries and gas to your credit card, but this advice only applies if you have a balance – it’s designed to help you avoid overpayments. make a bad problem worse.

If you never have a balance on your credit card, paying recurring charges on your credit cards won’t cost you anything and can help you earn more rewards. These rewards can actually reduce your expenses in other areas by helping you pay for vacations, gifts, clothes, and parties. (For more, read 3 New Types of Credit Cards to Look For.)

Allows you to make large purchases efficiently

You already know that using your credit card to pay for big purchases is convenient and can help you earn rewards. What you might not know is that your credit card probably includes a number of consumer protections that can come to your rescue if something goes wrong with your purchase. For instance,
Protections include extended warranties, price protection, and coverage for damaged or stolen items.
American Express
offers similar benefits. Check your credit card agreement to see what protections apply to your cards.

Helps you avoid credit score problems

One way to access more credit is to get another credit card, but increasing your limit on an existing card might be a better option. According to FICO, opening a new credit card can affect your score. When you open a new account, it shortens the length of your credit history, and a longer history often means a better score. The age of your oldest account, the age of your newest account, and the average age of all your accounts factor into the length of your credit history, and this metric affects approximately 15% of your score.

The essential

If you know you’re likely to spend up to your credit limit, no matter how much, this major inconvenience will outweigh the benefits of increasing your credit limit. If not, consider asking for a raise. It’s usually as simple as emailing customer service. (For more information, read How many credit cards should you have?)

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