Advantages of Having High Credit Card Limit
Having high credit card limit may not necessarily mean that you are deep into debts. What is credit card limit? Credit card limit is simply the maximum amount you are allowed to spend with your credit card. Once you have reached the credit limit, you will no longer be able to use the card to make further payment except you pay all or part of the card balance.
For instance, if your credit card limit is $5,000, this means that you can use the card to make payment that is less or equal to that amount. Once your cumulative spending gave reached $5,000, it means that you have reached your credit limit. You will therefore need to pay your credit card issuer either part or the entire $5,000 before you can make further payment with the card again. In essence, your card balance cannot exceed $5,000. If you attempt using the card to make any purchase after you have reached your credit limit, such purchase will be declined. Few credit card companies allow their customers to over-shoot their credit limit but this must have first been agreed. Over the limit is a way to quickly pay for something when the fund available on your card is not sufficient to pay for whatever you want to buy or pay for. However, this may attract a fee. Apart from the fee you may pay, it is not advisable to overshoot your credit card limit. You should always monitor your spending. At times, your credit card company may charge you a fee such as annual fee. This may reduce the amount you think you are still having on your card. This may make you to exceed your limit when you don’t intend.
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Benefits of High Credit Card Limit
Below are the benefits you may derive from having a high credit card limit.
- Low credit utilization: Credit utilization is the proportion of your credit limit which you have used for purchases. In other words, it is the ratio of your card balance to your credit card limit. Credit utilization is one of the criteria that credit bureaus use to calculate your credit score. The lower your credit utilization ratio, the better effect it will have on your credit score. If your credit utilization is too high, this will ding your credit score. This is where some people make mistake in the use of their credit cards. They think that they are at liberty to exhaust their credit limit. They think that as long as they pay their credit balance in full at the end of the month, that there is no problem. This is a myth. You should not fall victim of this practice. If you use your credit card often to make purchases, having a high credit limit can ensure that you don’t spend too much out of your credit card limit. Let’s demonstrate it with this example. If you spend average of $3,000 per month through your credit card while your credit card limit is $6,000, your credit utilization ratio will be 50%. But if you increase your credit limit to $12,000 while you still spend the same $3,000, your credit utilization ratio will become 25%. If you want to improve your credit score, you need to keep your credit utilization below 30%.
Read Also: Credit Utilization Ratio and How to Keep it Low
- Access to new loans or additional credits: Before any bank or credit card company will advance you any loan or credit, they will like to check your debt to income ratio. It is believed that before you can be granted a high credit limit, your income should support it. If you are only making use of the fractional credit you have available, banks and credit card companies will believe that there is no pressure on your finance. This will give them confidence to advance you new loans or credit.
- Availability of funds for emergency: Your credit card is just like a line of credit which you can tap into at any time you need it. Even though you don’t have much cash stacked in your emergency savings account, the high credit limit on your cards can serve as a ready cash for you in time of emergency. Such emergency may involve paying medical bills or paying for repairs which you never planned for.
- Ability to make large purchase: With high credit card limit, you will find it easier to make large purchase. For instance, it may be difficult for somebody with credit card limit of $1,000 to use the card to buy an item that is worth $1,200. But for somebody with $5,000 credit card limit, to make a purchase of $1,200 at once cannot be a problem except he has almost exhausted his limit.
- Access to rewards: If you have high credit card limit, you can leverage on it to make purchases for items that attract discounts or rewards. Also, some reward credit cards will require that you spend certain minimum amount within a specified period with the card before you can qualify for cashback, points or other rewards. This may only be possible if you have high credit card limit that can accommodate the required minimum spending.
- Improved credit score: In all, if you are able to use your credit card responsibly by keeping your balance low and ensure that you pay your card balance promptly, you will be able to improve your credit score.
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Having enumerated the benefits of high credit card balance, I know that many people will like to increase the limits on their credit cards or apply for high limit credit card. If you are interested, you will need to approach your card issuer and discuss it. It is not automatic that your credit limit is going to be increased. Your income level should be able to justify the new credit card limit that you are asking for. Also, if you have been missing your payments, your credit card issuer may not be willing to increase your credit limit. It will be worthy of note to mention that, you should not increase your credit card limit with the aim of increasing your spending. If you increase your credit limit and then increase your spending at the same time, you may not see any improvement in your credit utilization. Your credit score will only improve if you are able to take the advantage of the high credit card limit by keeping your credit utilization low.