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Credit Card Limit Increase Is A Double-edged Sword

Has your employer been generous with your salary hikes?

Have you been a good borrower, with an excellent record of timely repayment?

If so, you can surely expect your bank to enhance the spending limit on your credit card(s). But... should you fall for this smashing offer?

It depends:

Pros of increase in the credit card limit

1. More money to spend
The most obvious advantage is that you have more money to spend. Many fancied products that you could only aspire and envy till now, will henceforth be within your purchasing power. Thus, higher credit limit helps you to transform your unfulfilled dreams into a reality.

2. Improving your Credit Score
Utilization of your credit card, is one important parameter in calculating your Credit Score. High utilization often adversely affects the score. This is where a higher credit limit helps. Suppose, you restrict your spending to the earlier levels. Then, a higher limit effectively lowers the overall percentage utilization. This leads to a better credit score.

3. Reduce number of credit cards
Higher limit per credit card helps you to cut down on the number of cards you need to carry in your wallet. This naturally saves on your annual fees on cards. And, if you tend to be careless with your bills, lesser number of payments to keep track of, becomes an added advantage.

4. Helps in emergencies
Higher limit coupled with restricted utilization means access to extra money that is available instantly. This can prove immensely helpful in case of any emergency. Instead of focusing on raising necessary cash, you can rather concentrate on the problem itself.

5. More reward points
Higher usage translates into more reward points. More rewards points means you can redeem them for more expensive products. Such free gifts are a terrific bonus indeed.

Beware! Increasing your credit card spending limit could prove seriously damaging.

Cons of increase in the credit card limit

1. Risk of splurging
This is the biggest risk of all. It is definitely not easy to resist the magical lure of materialism. Numerous people have landed into serious financial mess, due to excessive usage of credit cards. Thus, a higher limit is an open invitation to a bigger trouble.

2. Threat to your credit score
If you are not careful and pile up huge debt, it would badly impact your Credit Score. Bad score, as you know, can have serious repercussions. A lower credit limit is an "automatic protection" against causing grievous damage to your finances.

3. Threat of theft and misuse
Naturally, no one would bother to steal (or hack) your credit card if s/he is not going to gain much from it. With a higher spending limit, you become a potential prey for the crooks. Just imagine if someone spends lakhs of rupees misusing your credit card. And, if you add extra precautions such as insurance against theft, it would only add to the costs of maintaining the card.

4. Affect your eligibility to borrow
Home, vehicle and education are some essential needs that may require loan financing. Higher limit / utilization on your credit card would seriously curtail your loan eligibilty, thus jeopardizing your critical requirements. It is prudent not to take such undue risks.

Concluding, you may opt for the higher credit card limit ONLY IF...
... you are an extremely disciplined and cautious buyer; and
... will have no problem whatsoever in clearing your bills by the due date.

Else, say a firm NO to your bank. Because, one false purchase on your credit card, could prove extremely detrimental to your personal finances.

Meanwhile, here's everything you wanted to know about Credit Score and Credit Information Report.

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