Should I Increase My Credit Card Limit?

Should I extend the limit on my credit card due to the high-risk factor it bears? This is a question I often asked myself since I got approved for a credit card. 

There was joy when I realized I could have a budget, but also fear of going over it thanks to the new card. 

Interestingly, only 57% of households with less than $25,000 in annual income hold a credit card, which gives a reflection of people’s attitude towards credit responsibly (Source: Forbes, 2024).

With time, I’ve also come to know that increasing my credit limit is more of an asset and when done in the correct manner, it widens my avenues as well as improves my credit standing. 

In this article, I will describe how I found myself in this position and what matters I took into consideration prior to making this decision. 

Reason #1: Extra protection in emergencies

Emergencies can happen anytime, that’s why it’s best to be as prepared for them as possible; one way to do this is by increasing your credit card limit. 

Doing so can give you quick access to money when needed, for example if you got into a car accident and had an expensive car repair bill to deal with. 

For in case, there could also be some occasions when higher expenses will be needed and a furnace in your house stops working in winter seasons.

This replacement may cause a lot of problems and delays, and only people with higher credit limits can be assisted.

When one possesses a credit card that can be used during an emergency, it cushions the person as long as it is certain that the repayment will be made later in time. 

Therefore, having extra financial protection in case of emergency is one reason to increase your credit card limit. 

Do You Know?
The credit card was invented in February 1950 with the launch of the Diners Club card, founded by Frank McNamara.

Reason #2: More rewards

If you have a rewards credit card and want to earn even more points, increasing your credit limit could be a great option. 

Most rewards cards give you points for every purchase, and with a higher credit limit, you could purchase more items with your credit card, thereby racking up more points. 

Moreover, since your limit is larger, it allows you to increase the number of items charged to your credit card without exceeding a low level of debt utilization ratio (explained later in this work). 

Although most financial experts caution against charging all purchases to a credit card, this rule generally only applies to those with low limits or those who frequently spend beyond their means. 

If you are a responsible credit card user, then requesting a credit limit increase to benefit from more rewards might be a worthwhile choice. 

Reason #3: Boost your credit score

Increasing your credit limit is a quick way to reduce your credit utilization ratio and boost your credit score.

 A credit utilization ratio is the amount of available credit you have compared to the amount of unavailable credit (i.e. used credit). 

It is calculated by dividing your total credit limit (across all credit cards and credit products you own) by your existing credit balances. 

The credit utilization ratio is a major factor in calculating credit scores. The lower yours is, the more your credit score will grow. 

The credit utilization ratio is the second most vital variable in the determination of the credit score. 

It’s very straightforward: the more you owe on credit cards, the lower your score will be, however, in practice, it is best to keep the ratio below 30%. 

In simple terms, a credit score may be one of the most vital factors that get somebody high in the system as it will be easier to get a car, home, and much more.

In Conclusion!!

To sum up, after reviewing all the factors, I am able to say that increasing my credit card limit was indeed a good decision and not a mistake. 

In fact, it has made it easier for me to achieve any expenditure I may be required to make and it has in turn also enhanced my credit score.

At the same time, it is a decision that should not be taken lightly. 

I have managed to keep the higher limit balanced with controlled expenditures and repayments. 

For anyone planning to go the same route, the most pivotal thing is to know your habits and rules of finances so that you do not put your financial welfare at risk.

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