When you are using a credit card for your purchases, the one thing that you will be concentrated on is the credit card limit. Now, what exactly is ‘Credit Card Limit’? It is the amount of maximum credit that you can borrow using the credit card. Based on your repaying practice, income, credit score, and some other factors, credit card limit depend. If you have a good credit utilization ratio, stable income then you can enjoy credit card limit increase benefit. But is it beneficial to have cards with high credit limit? Let’s have a look at the pros and cons of credit card limit increase.
Pros of Credit Card Limit Increase
To use credit cards in a comprehensive manner, you can go for a credit card limit check. Here we will discuss the benefits of the credit card limit increase.
Credit Score Improvement- Having cards with high credit limit and using it within the limits help in improving the credit score. If you use below your credit card limit, you will be considered financially responsible and secure. So, the credit card issuer will financially trust you after the credit card limit check. In short, you can use the credit card whenever it is essential to use and can improve the credit score.
Emergency Back-Up- With the help of credit card limit increase, you can use it at the time of financial emergency. Though it is advisable if you do not use the credit card as an emergency fund. Instead, you can use the savings account. But depending on the situation and its intensity, you can definitely use cards with a high credit limit.
Lower Credit Utilization Ratio- With credit card limit increase, if you continue to spend the same amount before the card limit increase, then you will have a low credit utilization ratio. So, your usage of credit card will get lower and the lending institution will consider you as a responsible user.
Easy To Get Loans- Using high credit card limit, you will be able to improve your credit score and as a result, you can easily avail a loan. The lending institution can provide you a personal loan or home loan to the customers at a lower interest rate with a high credit card limit. So, you can also avail business loan at a competitive rate if you have high credit card limit with a high credit score.
No need of Multiple Cards- Using a single credit card with high credit card limit is better than using multiple cards with a lower limit. You can track your card transactions and manage your expenses well by using one card. Moreover, a single card with a high credit limit can easily increase your credit score. Also, you can save some extra bucks for the charges for each cards.
Rewards- If you use high credit card limit and pay the full bill on time, then you can earn good rewards. So, next time when you use the card, you can utilize the rewards and can save your purchases.
Cons of Credit Card Limit Increase
Using cards with high credit limit, you do get benefitted. But if you do not pay the credit card bill on time, then credit card limit increase becomes a burden for you.
Higher Debt- With an increase in credit card limit, you get to spend more than you can afford to pay. So, as a result, you end up with higher debt and becomes a burden on you to pay. Also, the more you delay in bill payment, the higher will be your interest rate charged.
Higher Interest Rate Charged- Using high credit card limit for your increased spending, higher will be your credit card bill. If you only pay a certain amount, then the interest rate charged will be really high. And this will continue until you pay the whole credit card bill.
Risk of Card Theft- In case you lost the card with high credit card limit, the chances of credit loss will be much more high. The fraud purchases will be billed against your account. But a lower limit card will reduce the credit loss risk.
Strict Enquiry- If you have good repayment history and an income hike, then the bank itself offers you with credit card limit increase. But if you ask the bank to increase the credit limit, then the bank will go for credit card limit check and strict enquiry on your existing credit. In case there are multiple enquiries within a short time period, it will negatively affect your credit score. This in turn, will make it difficult for you to get loans at a lower rate.
So, in short, a higher credit card limit is beneficial if and only if you use it in a disciplined manner. Overuse of credit card limit increase will burden you with high debt and high-interest rate.