Credit cards come in handy when making those important purchase. However, if you feel that your card will give you a better swiping edge if it had a couple of zeros added to it there are a few things you need to consider. Five to be exact. Although it might increase your swiping power, it can come with a considerable amount of responsibility such as knowing your limits and managing your spending. When it comes to increasing your credit card limit these are the five things you must consider.
Increasing your limit can come with an upgrade in plastic
Having an increased credit card limit means that you are financially prepared to shoulder that comes with this increase. Increasing your limit could also spell getting a new card that comes with beneficial perks to use towards handling debt, ongoing expenses, and other financial commitments. If you are increasing your limit for all the right reasons you won’t just only have access to a sleek shiny new card, you will be unlocking interest-free periods upon sign up.
The interest-free periods generally last for 55 days, which can help you repay your full balance without accruing interest. The reward programs that come with a credit card are also something that is worthwhile, but before you jump on the bandwagon of increasing your limit there is still more to consider.
An increased limit can increase spending
If you are still struggling to manage your spending on your current card that has a lower limit than the card you are aiming for, getting an increased limit will only add fuel to the flames. The added zeros might make you feel that you will be able to now pay off more, which is true, but it also means that your credit card will foot a larger interest rate. This can make meeting the monthly repayment hard to meet. A default will be listed on your credit report if you have passed 60 days in which the payment was due. You could be fined with $150 for this default. This can remain on your file for up to 5-7 years. There are benefits in having a lower credit limit that can help reduce the temptation of spending. You must keep in mind that for every purchase you make on your card it will attract interest.
A higher credit limit can negatively impact your future borrowing
It is most likely that you will request borrow a loan either to pay your mortgage, a car, or a personal loan to take care of personal expenses. Increasing your limit will reflect on your credit report which any potential lender will look at to determine whether to borrow you the sum of money you have applied for. Increasing your credit card limit can decrease the amount that is given to you. Your ability to pay off this increased limit will also play a role in whether future credit lending is approved or denied.
Try not to rush the process of getting approved
If you have applied to a credit provider and requested a credit card that comes with an increased credit limit, but get denied, take your time to re-apply again. When a request is denied by a lender or a bank it impacts your credit score. Jumping from one provider to the next can impact your credit score negatively and ward off future lenders. A lender might look at your credit report and become suspicious once they notice that there have been many credit inquiries that were made within a short period of time on your credit report. You can buy time by accessing if there are not other areas in your lifestyle that you need to cut back on financially in order to make your current credit work.
Be careful not to ask for too much too soon
An increased credit card limit can put you at the risk of defaulting on monthly repayments and further push you into debt. According to ASIC, the average debt that credit card holders in Australians owe is $4,192.85, which can accrue a further $700 that is owed on interest if your interest rate is between 15 – 20%. It is advisable to increase your credit limit by 10-25%, to test how you manage this increase. The better you manage it will determine whether you can handle more, but you should only request an increase if you really need it. Aiming too high from your current limit can reflect badly on you and can increase your chances of being denied.