A credit limit allows you to make responsible purchases with the promise of repaying what you owe at a later date. It’s a good idea to have a lower credit limit to prevent the accumulation of debt. But, there might come a time when you’ll need to buy something that’s beyond your credit limit. This is one of many reasons to increase your credit limit. Increasing this limit also improves your credit score and may give you a better chance at loan approval in the future.
After consulting with your bank, they might be able to increase your limit, thus granting you more freedom than you had before. Sometimes, credit card companies automatically increase your credit limit. If this has not happened, then it’s time to request it.
There are many deciding factors for a credit limit increase. Making payments back on time, only having a few credit cards, and making a decent income will increase your chances for a credit limit approval. They’ll base denial upon having too many accounts and credit cards and missing payments.
Improve your credit score
Increasing your credit score works two ways. By increasing your credit limit, you’re giving yourself the opportunity to buy more. As long as you make your payments on time, this equates to improving your credit score. You’re given more opportunities to pay back your credit on time. This increases your chances for loan and mortgage approval in the future.
Also, if you increase your credit limit but still spend the same amount of money, this improves your credit utilization ratio. It also shows to loaners that you don’t need as much credit limit as you’re granted. A better credit score gives you tons of opportunities and stability across the board.
Prepare you for future credit cards
There may come a time when you want to apply for a prestigious credit card. If you can make your payments on time and prove you’re financially responsible now, this will help your application for the new card in the long run.
Helps improve your credit utilization by lowering it
As mentioned above, increasing your credit limit helps improve your credit utilization. If you currently have a credit limit of $3,000 per month and only spend $2,600, then you’re using roughly 86 percent of that limit. If you increase your credit limit to $4,000 and still only spend $2,600, then this will lower that percentage. This improves your credit utilization and credit score.
More buying power
A bigger limit means more buying power. You can now make major purchases that you normally wouldn’t have been able to make or would have had to wait to save up for.
More of a chance for loan approval
Increasing your credit limit while sticking to the same budget shows loaners that you’re responsible with your finances. Since you don’t use all the credit limit on your card, it proves that you’re making a decent income and timely payments. If you only use 50 percent of your credit limit, that will prove to loaners that you make payments back on time. It also shows that you’re financially stable enough and don’t need half of the credit available to you. This will help you for loan approval in the future.
Good for emergencies
It’s always a good idea to have extra money at hand in case of an emergency. Increasing your credit limit will give you a good cushion should you ever need extra money in the case of an emergency. Treat it as a safety net.
Reap the rewards
Many credit cards offer points and rewards when you spend money on your card. If you have a bigger credit limit, then you’ll be able to make more purchases which means you can accumulate more points. In turn, you can use these points to buy things like hotels, flights, and even gift cards.
Take hold of your finances
Increasing your credit limit shows you’re financially stable and responsible enough to handle this change. It’s empowering and proves that you’re making a steady income and handling your budget in an appropriate way. You prove that you can make major purchases and make payments back on time.
There are many reasons to increase your credit limit. By increasing your limit, you can improve your credit utilization score, have more buying power, and improve your credit score.