Increased Credit Limit. What now?
Feb 21, 2017
You’re making your way through life. You are working a job you tolerate, you are committed to paying your bills on time, and you are managing to have a decent amount of fun in the meantime.
You’re not awful with money, but you’re also not completely obsessed with it either! A few months go by, and you start carrying a small balance on your credit card. No big deal. You will pay it off later, right?
A few months turn into several, and your small balance has slowly increased to… well, you aren’t exactly sure.
Then, one day, you look at your credit card balance and something is different. Your credit limit was increased! At this point, you’re probably thinking one of two things:
- HELL YES! I am RICH.
- HELL NO! The last thing I need is more room to be an idiot with my money.
Regardless of your reaction, the question remains:
What are the implications of an automatic increase in credit?
The answer is dynamic:
An automatic increase in credit does not hurt your credit. As a matter of fact, it can help it! Here is how:
- Your credit score is made up of a few different components, one of which is your credit utilization rate. The credit utilization rate tells bankers how close you are to maxing out your credit cards. The further you are away from maxing out your cards, the lower your credit utilization score. Credit companies stay happy if your credit utilization rate stays under 20%. If you go over this limit, they slowly start docking your score. So, an increased credit limit puts your further away from maxing out your cards, which reduces your credit utilization, and increases your score!
- You are receiving an increase due to the fact you already have good credit! Score!
With great credit card limits comes great credit card responsibility.
- Banks love making money, and as you can imagine, a huge source of their revenue comes from credit card interest! A higher credit limit is great for reducing your credit score, but it also means you have the option to get into a larger amount of debt. So, it does take a bit more “adulting” to manage.