Finance Globe

U.S. financial and economic topics from several finance writers.
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Looking for a Credit Limit Increase?

Is there something you'd like to do with your credit card, but are held back by the credit limit? Do you have a wallet full of low-limit credit cards, complicating your shopping and bill-payments? Would you like to transfer your balances, but don't have a card with a limit high enough to make it worthwhile? Are you in the market for a high-dollar item, and want to earn rewards on the entire purchase?

A credit limit increase may be the answer.

To improve your chances of getting a credit limit increase, it helps to see the situation from the card issuer's point of view. When they consider a card holder's credit limit increase, they have to weigh the possible profit against the possible risk. They increase their profit if the card holder uses the card with a higher limit, runs up some finances charges, and pays back the debt. They increase their risk of loss if a card user, who already has too much debt, eventually gets behind and can't pay them as agreed. Proving your credit-worthiness to the card issuer will help you succeed in getting a credit limit increase.

Keep a healthy credit score. Check your credit report once in a while, and make sure that all accounts are reported accurately. Look for signs of fraudulent activity that may hurt your credit. Take care of any negatively reported accounts; one forgotten account can bring your score down considerably. Keep your account balances under about 30% of the credit limits, and even less than that is better. A good credit score helps you get higher credit limits and lower APRs.

Follow the card issuer's rules as stated in the card's terms and conditions. Stay within your credit limit, and be sure to pay on time. Card issuers want to know that you keep your word, and that you value your contracts. If you show them that they can trust you to manage your finances responsibly, you'll have a better chance at a credit limit increase. Going over the credit limit or paying late is a warning signal that the card user probably already has more debt than they can handle.

Use your card on a regular basis. Occasional or emergency use only makes it more difficult for you to show the card issuer that you know how to manage debt. Card issuers can more easily see a pattern of responsible credit card use when you use your card every month, and then pay the bill every month. Using your credit card often, and then paying as agreed, shows card issuers that you have control of your financial obligations.

Don't max out your credit cards. Credit card issuers like to give additional credit to those that don't look like they really need it. They hope that someone - who rarely runs their charges to the limit - will be more likely to buy a big-ticket item or go on a luxury vacation if they had a higher limit. On the other hand, someone whose credit card balances are nearly at their limit looks like they can't control their spending, or that they are using credit cards to keep up with their lifestyle, because they're living beyond their means.

Pay your full balance often. Card issuers like to see that you can afford to easily pay down your debts. Being able to pay off the entire credit card balance, most of the time, shows the card issuer that you can control your spending, you know how to fit your debts into your budget, and that you value your good credit. If you typically don't send much more than the minimum payment, you are telling the card issuer that you can't afford to pay more. This will reduce the likeliness of a credit limit increase, since the card issuer will be worried about giving you more credit than you can handle.

Let the card issuer make at least a little money from you. If you never pay finance charges because you always pay your full balance, good job. You are smart to keep your debts at a manageable level. The only thing is, the card issuer isn't making any money when you get a free ride. If they aren't making any money from you, they have no reason to give you an even bigger free ride. Once in a while, pay only part of your balance, so the card issuer can earn a little something. This will entice them with the possibility of future interest earnings, and increase your chance for a credit limit increase.

You must have the income to support a credit limit increase. No matter how responsible you may be, card issuers will only approve a credit limit increase if you have the means to pay them back. A small increase of several hundred dollars will probably be approved without many questions. But, if you're looking for an increase of many thousands, be prepared to provide the documentation to prove your income.

Wait until your account has been open for at least six months. Most card issuers have their own minimum time-frame before they'll approve a credit limit increase, often anywhere from six months to a year. They usually want to see that you can manage your account for a certain amount of time before they let you loose with more credit. Some card issuers will automatically increase your limit after just a couple of months, but that's typically because they started you off with a pretty low limit to begin with. It really doesn't hurt to ask, but card issuers won't okay an increase if it's too soon after you open the account.

Be aware if the card issuer charges fees for credit limit increases. Card issuers that charge these fees are usually for cards in the sub-prime market, but a few cards for good credit charge credit limit increase fees, too. Some issuers charge $25 for each increase, and some charge as much as 50% of the increase amount! Some issuers only charge this fee if you request the increase, and some will charge it even if they increase your limit without you asking for it. Find out the card issuer's policy before you request a limit increase; it can be found in the card's terms and conditions. If you have a better card available to you, you may find you're better off without a card that charges limit increase fees.

A higher credit limit can be more convenient.
A credit card with a higher limit can reduce the need to juggle many credit cards. It can be easier to keep track of balances and due dates when you have one card with a limit high enough to do it all. A higher credit limit can allow you to travel with fewer credit cards, or let you pay off last-minute emergency expenses. There's no doubt that a card with a higher credit limit gives more flexibility and convenience. Just remember, that with increased credit limits comes increased responsibility.

Many card users use credit for everyday purchases, whether it's for the convenience or to rack up rewards points; that's okay, as long as you can pay off the entire bill most months. But, keep in mind that many consumers have attempted to cover up their debt problems with higher credit limits. They live beyond their means with the use of credit for basic needs.

But a higher credit limit can also cause trouble for some.
Someone who continues to use credit cards daily and cannot pay their entire bill most of the time should stop and take a hard look at their situation.

If you think you need a credit limit increase because all your cards are nearly at their limits, and you need credit to keep up with your lifestyle, then you need to take control of your credit card use before it financially ruins you. A credit limit increase is not the answer you're looking for; the only thing that can fix that kind of problem is a spending decrease.
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Friday, 18 October 2019

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