Increase Credit Limit

Increase your credit limit to increase your credit score

Why Increase Your Credit Limit

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If you are thinking of requesting a credit limit increase, one of the first things to ask yourself is why you want to do this. Like most things, there are good reasons and bad reasons to try to increase it. Making sure you are doing things for the right reason is key, because otherwise a higher limit might just lead you into financial trouble! Here are some general guidelines:

 It can help your credit score – This is the biggest reason that you should look at increasing your credit limit. 30 percent of your credit score can be dependent on your credit utilization, or what percentage of your credit that you are using.

To use real numbers, let’s say that you have a credit limit of $1,000, and you have a $500 balance on the card. Your credit utilization would be 500/1000, or 50%. This is a very high percentage, and would likely hurt your credit score. However, let’s say you were able to increase that credit limit to $2,000, while keeping the same balance. Suddenly, your credit utilization would be cut in half – 500/2000 = 25%. A good rule of thumb is that you should aim to have a credit utilization rate of 10% or lower. Obviously, the higher your credit limit, the more achievable this will be.

– You have more credit in case of an emergency – If you are responsible with your credit card and paying it off every month, a higher credit limit could provide you with peace of mind that if an emergency were to come, you would have more credit available to you. Ideally, of course, you would never have to use it, but it can be nice to know it’s there.

– Increase your rewards – Again, this is a good reason only if you are responsible with your card and paying it off each month. Let’s say you have a rewards credit card with a $1,000 limit. If you are going to be making a large purchase, you might not be able to fit it all on the card, thereby decreasing the amount of rewards you could get. An increased credit limit would help in this situation, because you could then maximize the rewards.

– If you NEED the extra money, that is NOT a good reason – If you are looking at requesting an increase because you find yourself constantly in danger of going over the limit, this is NOT a good reason to try to increase it. This is a good reason to look at your spending. If you are desperate (and they will be able to see this), then they will likely turn you down.

Getting an increase to your limit can be a powerful financial tool, but it can also get you in trouble if you are not responsible. If you are, it can be a good way to boost your credit score.

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