Credit cards can be powerful financial tools but can also cause serious problems if you let them. The key is to use them wisely and pay off the balance each month. But there are some good reasons to increase your credit limit.
Lowering your overall credit utilization
Two main factors contribute to your credit score: your available credit and how much of that credit you’re using. This is called “credit utilization.”
Credit card companies often increase a customer’s limit to encourage them to spend more money on their cards, which can help boost revenue for the lender. But there are many other benefits as well.
Keeping a low utilization ratio improves your credit score
A low utilization ratio is a good thing. The higher your credit limit, the better. You can increase your credit limit and stay within limits at all times.
Knowing you can pay for emergencies
If you have a medical emergency, for example, and don’t know where else to turn financially or if your child gets sick at school and needs immediate medical attention. You can use your credit card to pay for the services needed. That way, you won’t have to worry about getting into debt or having insufficient funds on hand when an emergency strikes.
Paying less in interest charges
Interest is the amount charged for borrowing money. It’s expressed in the annual percentage rate (APR) and is usually higher for credit cards than other loans. You’ll pay less in interest charges if you use your credit card frequently because the bank charges interest only on what you’ve spent.
Managing multiple cards better
The most obvious benefit to increasing your credit card limit is being able to make larger purchases. With a higher limit, you won’t feel as limited by the money in your bank account and can feel safe making larger purchases. It’s also important to note that this could help prevent overspending by increasing your monthly spendable income without having more money. According to the professionals at SoFi, “there may be multiple types of credit limits on the same credit card, e.g., a daily spending limit or cash advance limit.” So, make sure that you know about this before getting multiple cards.
Protecting your other credit card from dips in utilization
The second reason you might want to increase your credit card limit is to protect the rest of your credit profile from dips in your utilization. Having a low balance on one card benefits all of your other cards by showing that you can use more than one at once without maxing out any of them. If a lender sees that you have several open accounts with high limits but no balances, they will likely assume that those accounts are there for emergencies or special occasions and will be more inclined to grant additional credit lines to you down the road.
Getting rewarded more often and more generously
You get more rewards. Most credit card companies reward you with points, miles, or cash back for purchases made on their cards. The more you spend in a month, the higher your rewards will be and the faster you’ll earn them. In some cases, you may also receive additional benefits such as travel insurance coverage or rental car discounts when traveling internationally with a credit card with high limit.
In the end, increasing your credit card limit is a great idea. It can help you earn more rewards and track how much money you spend on things like groceries or gas.