Increasing your credit card limit can offer numerous benefits providing greater purchasing power, improving credit scores, and increasing flexibility in managing expenses. It can also enhance reward programs and reduce credit utilisation ratios, leading to lower interest rates and higher credit scores.
However, it is essential to consider the implications of increasing your credit card limit, as it can also lead to higher debt and financial challenges if not used responsibly. In this response, we will explore 6 benefits of increasing your credit card limit and how to make the most of it.
Benefits of increasing credit card limits
Below are some of the benefits attached to increasing your credit card limit.
- Dealing with emergencies
Emergencies can happen anytime, and having a higher credit card limit can provide you with the necessary funds to handle unexpected situations. For example, if a family member is hospitalised or you face unexpected business losses, increasing your credit card limit can help you pay for the expenses. However, it’s important to use your credit card responsibly and only spend what you can afford to pay back.
- Making large purchases
Increasing your credit card limit can give you the necessary purchasing power if you need to make a big-ticket purchase. Your credit card can enable you to buy items that cost more than your available credit balance. Additionally, some credit cards come with additional benefits such as extended warranties, price protection, and protection in the case of damaged or stolen goods.
- Earning more rewards
Using your credit card to make everyday purchases such as fuel, groceries, and electronics can help you earn more rewards. Many credit card companies offer reward programs such as cashback, points, or miles that can be redeemed for various benefits such as statement credits, travel rewards, or merchandise.
- Reduces your credit utilisation ratio
Your credit utilisation ratio is the percentage of credit you utilise. If you tend to spend more than 30% of your available credit, it signals to credit card companies that your financial behaviour is risky. But spending far below your available credit or limit boosts your credit utilisation ratio and enhances your credit score while potentially increasing your credit limit.
- Improves your overall credit score
The more credit cards you have, the likelier you get into debt, negatively impacting your credit score. The preferable option is to increase your credit limit on one card – instead of acquiring additional cards. When you go for a credit card limit increase, it signals to credit card issuers that you are financially responsible and it impacts your overall credit score.
- Facilitates loans
Increasing your credit card limit without necessarily using the additional fund assures financial institutions that you are credit-worthy. Increasing your credit limit should not necessarily be to access the fund – unless for an emergency – but it does tell financial institutions that you are eligible for car loans, mortgage, and business loans at lower interest rates. That being said, having a higher credit limit can give you more flexibility in managing your finances and potentially increase your chances of being approved for credit.
How to increase your credit limit
Below are ways to potentially increase your credit limit.
- Call your credit card company and request an increased credit card limit.
- Seek to increase your credit score and your credit card issuer may review your account for a potential increase.
- Pay off your credit card balance – or pay above the minimum balance every month.
- Use your card frequently for basic needs
Summary
In conclusion, increasing your credit card limit can offer several benefits, such as providing the ability to make large purchases, earning more rewards, and improving your credit score. However, using your credit card responsibly and not overspending is essential because you have a higher credit limit. Before requesting a credit limit increase, reviewing your spending habits and ensuring you can handle a higher credit limit responsibly is important. A higher credit limit can provide more flexibility and financial opportunities with careful consideration and responsible usage.
