Is An Increased Credit Limit A Good Thing?
The credit card is a thing of prestige in some circles. Take, for instance, the recent American Express commercial poking fun at the businessman’s comic book character-themed credit card in lieu of the prestigious AmEx Gold card. In fact, in the commercial it causes the poor, dim-witted businessman to lose out on an apparently lucrative business deal.
Yes, credit card colors and styles draw respect in some circles. Another point of pride, albeit one much less talked about, is the credit limit. Credit card companies can raise your credit limit at will, just as they do with your interest rate. Card issuers increases generally consider credit limit increases two or three times a year. When the bank sees you handling your repayment plan responsibly (i.e. no late payments or over-the-limit charges), they will likely offer you an increased credit limit. If you get an offer for an increase in your limit, you do have the option to decline it, unlike an interest rate increase (too bad we can’t decline those)! You may want to decline it if you are having trouble paying off the balance you already have, but we’ll get to that.
A credit limit increase is often viewed as a good thing by the cardholder. All too often, it’s also viewed as a signal to spend more, spend more. There are two problems with this. It gets the consumer mired deeper and deeper in debt. It’s a psychological issue, and a huge temptation for cardholders who haven’t learned how to get their spending under control. Just because you have room on the card doesn’t mean you can afford the payment. If you can’t afford it now with cash, you won’t be able to afford it a month from now. It may sound like your grandmother talking, but she knew what she was talking about.
Furthermore, credit card companies can decrease spending limits just as fast as they increase. This can have consumers over a barrel with interest charges and over-the-limit fees. It can ding their credit report in a major way and cause their interest rate to skyrocket. It ain’t pretty, and don’t think it won’t happen to you. Bottom line, is a credit limit a good thing? It’s all relative. But if you have a history of credit troubles, it’s best to decline the offer. It may be handy in an emergency, but the chances are good that you would have already nearly maxed out your available funds and they wouldn’t even be available anyway.
