Having a lot of available credit sounds good, right? Well, let’s think about this for a second. Lenders are in the business of making money off the interest you pay, so increasing your amount of available credit is a technique for adding to their profitability. But what’s best for your situation?
What is Available Credit?
Simply put, your available credit is the amount that the bank or lender has agreed to loan you. It’s based on your credit limit minus the balance you owe. Lenders decide how much credit to make available based on your income and credit score, which basically tells them how big of a risk it is to lend to you. They look at several factors, including whether you pay your bills on time and if you’ve ever defaulted on a credit obligation in the past.
Should I Increase My Credit Limit?
Sometimes people try to raise their credit scores by increasing the limits on their credit cards or applying for new ones. That’s fine, but it’s important that you understand your credit utilization ratio and how it affects your credit score. That’s the ratio of how much of your available credit is being used. Yes, increasing your credit limits may help boost your credit rating, but if you max out your available credit, you could actually hurt your score. Remember, more available credit comes with more danger of getting into debt you can’t manage.
High-Limit Credit Cards: Are They a Good Idea?
Obtaining a high-limit credit card comes with big responsibility. Does your income support your ability to pay it off? What about your total amount of credit in use? An unintended consequence of having a high-limit credit card is that it can hurt your ability to get other credit, such a mortgage or auto loan. The numbers may appear too risky if a bank sees the amount of credit available to you. There are quite a few credit card options out there, so explore those before jumping into a high-limit credit card.
Make Your Own Plan
Be cautious with the amount of credit you take on and utilize. It should be a reasonable amount that you’ll be able to pay off. And remember, your circumstances can change, so it’s best to be conservative about how much you’ll be on the hook for. Keep track of your credit score, and stick to your own plan for spending wisely.