4 Questions to Ask Before Getting a Credit Increase
Feeling penned in by the low credit limits on your credit card? You might be able to boost your credit limit to a higher amount. Often, all it takes is a single call to your card provider. The bigger question, though, is whether you're financially prepared for a higher limit.
Your credit card providers will always set a credit limit on your cards, the maximum amount you can borrow. If you have a short credit history or a low FICO credit score, your credit limits might be low ones, sometimes under $1,000. If you have a long credit history and high scores, your limit might be $10,000, $20,000, or more.
How do know if you're ready for the financial responsibility of a higher credit limit? Here are some questions to ask yourself.
Do You Pay Your Credit Card Bill Late?
Do you pay your credit card bills by their due dates every single month? Or have you missed payments in the past? If it's the latter, you might want to hold off on requesting a higher credit limit.
Paying your credit cards 30 days or more late will cause your FICO score to drop by 100 points or more. Your credit card provider will also charge you a penalty, and your card's interest rate might soar. If you have a higher credit limit and a high balance, an interest rate spike could cost you quite a bit in extra interest payments.
Having a history of late payments will also give your credit card provider pause; the financial institution might not want to boost your limit if you don't always pay your bill on time.
Do You Carry a Balance on Your Card?
The smart way to use a credit card is to pay off your balance in full each month. This way, you boost your credit score by making on-time payments, and you won't get hit by the high interest that is often attached to credit card debt.
But what if you never pay your balance off in full? What if you roll your credit card debt over from month to month, watching it grow each 30 days as you do so?
If that describes you, don't worry about increasing your credit limit. Instead, focus on paying off your credit card debt in full. It's easy to let this debt get out of control because it tends to grow so quickly. You don't want to waste your money paying off interest each month.
If you think you need a higher credit limit to manage your bills, the better thing to do is to stop and assess your situation. A higher credit limit might save you for a few months, but you'll end up even worse off due to the high interest debt that you're accruing while your financial situation continues to spiral out of control. Make the tough cuts in your spending and create your debt payment plan.
Have You Maxed Out the Limits on Your Cards?
You never want to hit the maximum credit limit on your credit cards. If you've already done this on other credit cards, it's a sign that you need to get your spending under control, even if your credit card limits are relatively low ones.
Asking for more credit is not the right solution to maxing out your credit cards. The better move is to stop charging and start paying down those balances. Don't even think about asking for more credit until you pay off your credit card debt in full.
If instead you find you're bumping into your maximum even though you're able to pay it off each month (for example, you're trying to put your regular expenses on your card that you've been paying with cash or debit but there isn't enough credit available), that would be a good case for you to make in asking for a higher limit.
Do You Miss Other Bill Payments?
Are you constantly struggling to pay your auto, mortgage, or student loans on time? If so, you might consider higher credit limits to be a solution. After all, if you can charge more purchases each month, you might free up more cash to put toward those other bills.
This, though, is flawed thinking. If you're struggling to pay your monthly bills, you either don't make enough money, or you're spending too much. The better solution is to draft a realistic household budget showing how much money you're spending each month and how much you're earning. Armed with these numbers, you can then change your spending habits, make the move to a more affordable house or apartment, or search for a side job to bring in more income. (See also: 15 Ways to Make Money Outside Your Day Job)
Simply asking for more wiggle room on your credit cards is not addressing your money struggles. That's trying to avoid them.
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