Author Topic: Pros and cons of increasing credit card limit  (Read 4980 times)

Rosy

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Pros and cons of increasing credit card limit
« on: August 24, 2015, 05:42:43 PM »
Got a letter from Chase Amazon today about upping my credit limit - go online, put in a code - automatic increase?? I have never done that before, but I would like to because the current limit is lower than I would like. 

I am tempted to, because it is the card with the best interest rate, which I have had the longest, since 2002 and the rewards are nice too. It is the card I use when I travel and I've come too close for comfort to the limits off and on.

So what do you say Mustachians? What effect will this have on my credit? - Fico score? Is there something else I should know?

What limit should I ask for - expect to get?

vhalros

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Re: Pros and cons of increasing credit card limit
« Reply #1 on: August 24, 2015, 05:59:52 PM »
The only downside I can think of is  that they will do a hard pull on your credit history, which will normally knock your credit score down a couple of points for a while; unless you do have many hard pulls in a short amount of time, which can knock you credit score down more significantly. I am assuming that, since your posting here, you already know better than to spend more just because you have a higher credit card limit.

The primary advantage is it is easier to keep your balance below 10% of your limit, which in the long term will boost your credit score. Keep in mind that it is the combined limit for all your cards that matters in this context.

So, I'd go ahead and get it upped unless you need to maximize your credit score in the short term (like you are buying a house this year or something). I increased mine every year for a while until they were so ridiculously high I don't ever have to think about it any more (for a less frugal individual, the number might not seem so ridiculously high).

As to the limit you can expect, it depends on your current credit score, your income, and the current limit.
« Last Edit: August 24, 2015, 06:03:31 PM by vhalros »

Kris

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Re: Pros and cons of increasing credit card limit
« Reply #2 on: August 24, 2015, 06:00:03 PM »
I dunno. I have always resisted increases, just out of stubbornness.  I don't have any real reason to, though.

Rosy

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Re: Pros and cons of increasing credit card limit
« Reply #3 on: August 24, 2015, 06:06:27 PM »
^^^ Me too:), but it seems I have outgrown my limit, so I am seriously considering increasing my limit.

Quote
The primary advantage is it is easier to keep your balance below 10% of your limit, which in the long term will boost your credit score.


@Kris Excellent point - hadn't thought about it that way - thank you!:)

Bracken_Joy

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Re: Pros and cons of increasing credit card limit
« Reply #4 on: August 24, 2015, 06:28:15 PM »
A lot of times it isn't even a hard pull on your credit. Even if it is, credit checks are low impact whereas credit utilization is high impact on your score.

Unless you're already sub-10% usage, it'll most likely help your score.

Cpa Cat

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Re: Pros and cons of increasing credit card limit
« Reply #5 on: August 24, 2015, 06:41:56 PM »
I think I just got the same notice from Amazon and it says no credit inquiry. I deleted it because I'm always afraid to click on links in emails. But it's probably real... so maybe I should click.

Dicey

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Re: Pros and cons of increasing credit card limit
« Reply #6 on: August 24, 2015, 07:28:42 PM »
The primary advantage is it is easier to keep your balance below 10% of your limit, which in the long term will boost your credit score. Keep in mind that it is the combined limit for all your cards that matters in this context.
^^This^^
As to the amount, if you know your credit score is good, I'd try doubling your current limit if it will help you stay at or below 10%.

Rosy

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Re: Pros and cons of increasing credit card limit
« Reply #7 on: August 24, 2015, 07:57:48 PM »
^^^ thanks, Diane that is another good point. I might ask for near double then and see if that will stick.

sser

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Re: Pros and cons of increasing credit card limit
« Reply #8 on: August 24, 2015, 08:28:28 PM »
This is a great post on the basics of how various aspects of credit cards affect your credit:
http://affordanything.com/2015/04/14/how-to-hack-your-credit-score/

In particular, here's a summary quote:

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"Only three factors your payment history, utilization ratio and average account age comprise 80% of your credit score. Focus on keeping those three things as awesome as possible: automate paying on time, raise your limits, keep old accounts open."


Sounds like it might be a good idea to raise your credit limit, unless maybe you are already in the higher range for your total credit limit (might not matter as much then and would say go with what is comfortable for you).

Rosy

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Re: Pros and cons of increasing credit card limit
« Reply #9 on: August 24, 2015, 09:10:54 PM »
^^^ thank you for the link - good info.
The summary quote: I do live by those factors already, except for I did not know whether raising limits would help or hurt.

No, my current credit limits are not particularly high at all, 6K and 5K, but I kept them there so I would not be tempted to spend more than I could pay back comfortably. Since then, my circumstances have changed for the better all around.
I recently opened a third card, but they only gave me a 1.5K limit which seemed incredibly low to me. I almost declined the card, but I wanted their bonus and the 5% rewards plus they told me they would increase my limits down the road. So I guess, I should keep an eye on that.

I am not too worried about my FICO since I don't plan on buying anything on credit like a car or a home, but I wanted to be sure I didn't do some sort of damage that I was unaware of, just in case.






 

sser

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Re: Pros and cons of increasing credit card limit
« Reply #10 on: August 24, 2015, 10:29:00 PM »
Not sure how accurate it is, but my Capital One card has a "Credit Tracker" which allows you to simulate how various credit card-related things will change your estimated credit score.

For total available credit:
A: >$50k
B: $15,001 to $50k
C: $2.5k to $15k
D: < $2.5k

I'm currently in the C range, which it looks like you might be, too. When I did a simulation to up my credit limit by $5k to get me into the B range, the estimated credit score went up 5 points. If I bump it by $10k, it estimates that the credit score goes up 10 points. That pattern seems to continue until I get to adding around $20k in additional credit (credit bumps are a little less per at that point I suppose), which would still be in the B range.  Pushing it over $50k estimates an even higher score. Based on that, it doesn't look like increasing your total available credit by bumping up the limit on an existing card would hurt your credit (except maybe for an inquiry as someone mentioned, but that's short-term).

Maybe someone here who is in the B range or better can verify that that is how increasing available credit would affect your score?

Calvawt

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Re: Pros and cons of increasing credit card limit
« Reply #11 on: August 25, 2015, 12:02:10 PM »
Having more credit without getting a new account will help your score (especially without having an inquiry). 

High limits ensure that your utilization won't look bad when the cc bill generates (even if you don't carry a balance, the statement amount shows up on your credit each month).

I think the main question is can you handle the increase without overspending.  If the answer is yes, go for it!


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StacheInAFlash

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Re: Pros and cons of increasing credit card limit
« Reply #12 on: August 25, 2015, 12:38:14 PM »
I have kept pushing my card limits higher and higher over the years for 2 simple reasons:

1) For everybody, it is a form of emergency "savings" that can be used if shit hits the fan for some reason. Not too different than the "springy" debt of a HELOC that MMM recommends (that I also use). Obviously it is a horrible interest rate, but as a last ditch effort type thing, it is nice to know it there in an absolute emergency.

2) For me specifically, I travel for work a fair amount and it is not uncommon to be floating $4,000 to $7,000 of airfare/hotels/meals/etc. while I wait for reimbursements to come in so I can pay it off. It is reassuring to know I never have to think about my credit limit if I have to randomly put $2,000 on the card for something out of the blue. I know there is plenty of credit still. When I was doing some remodeling, I made an $11,000 purchase which would not have been possible with a low credit limit. Sure I could have spread it over a few other cards, but why deal with that hassle when the credit card companies have no qualms about giving me a higher limit?

I believe I have $28,000 total in credit between 3 cards, with the highest being $17,500. I have both randomly had my credit limit increased, and I have also specifically requested to have it increased at different times. Any temporary ding to the credit score was really nothing I was concerned about, and quite frankly isn't anything most Mustachians should worry about....

TrMama

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Re: Pros and cons of increasing credit card limit
« Reply #13 on: August 25, 2015, 02:25:52 PM »
I keep my limits lower than most here would recommend because my # seems to get stolen every couple of years. I sleep better knowing there's no way I'll be on the hook for someone else's charges.

frugaliknowit

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Re: Pros and cons of increasing credit card limit
« Reply #14 on: August 25, 2015, 02:31:02 PM »
Nothing to lose unless you are planning on applying for an important loan soon.  Even then, it shouldn't "move the needle".

marty998

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Re: Pros and cons of increasing credit card limit
« Reply #15 on: August 25, 2015, 03:16:04 PM »
For the Aussies...

When assessing servicing capacity, Banks assume your credit card repayments to be 3% per month of your credit card limit.

This can have an impact and reduce your potential borrowing power for home and investment loans.

So the rule is when asking the bank for a home loan, best to reduce your credit card limits as much as possible, then revert them back after you've been funded.

mozar

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Re: Pros and cons of increasing credit card limit
« Reply #16 on: August 26, 2015, 10:10:57 AM »
I kind of want to increase my limit, but my cc won't do it unless i tell them how much i make. So Ive been stubborn about not wanting to give them more info about me.

RunHappy

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Re: Pros and cons of increasing credit card limit
« Reply #17 on: August 27, 2015, 06:28:45 AM »
I used it as a way to bump up my horrible credit score in the years before applying for a mortgage.  I think I now have about $30k of available credit which is more than I wanted (one card upped it by 10k without me asking or typing in a code). 

My credit score is now around 750, I have a great mortgage rate.