Increasing your credit limit just means giving yourself the opportunity to spend beyond your means, right? Not necessarily. Increasing your credit limit can have a number of upsides if you manage your credit wisely.

SEE: Check Your Credit Report

Lowers Your Credit Utilization and Increases Your Credit Score
The FICO credit scoring model will ding your credit score if the amount of credit you've used is close to the total amount of credit available to you. That's because it considers you to be at risk of maxing out your cards and having trouble making future payments. You might know that these risks don't actually apply to you, but that's how the scoring model works.

If you have a $2,000 credit limit and you regularly end up with a monthly bill of around $1,800, you're using 90% of your available credit. Raising your credit limit will reduce that percentage and should improve your credit score.

Cheaper and Easier to Get Loans and Additional Credit
When you're not using nearly all of your available credit, you appear to be financially responsible to the credit bureaus and your credit score should increase. If your credit score is higher, you will have a better chance of getting approved for a credit card, car loan or mortgage in the future. You'll also have a better chance of getting a lower interest rate, since your credit score determines whether you'll be offered the best available rate or a higher, risk-adjusted rate. (For additional reading, check out How To Dispute Errors On Your Credit Report.)

Helps in an Emergency
Having a credit limit well in excess of your usual spending amount gives you a resource if you have a genuine emergency that you can't pay for with cash. Say you're traveling and you need to change your plans and return back home immediately - it probably won't be cheap to change your plane ticket, and it's easier to pay for a plane ticket with a credit card.

Increases Your Rewards
If you consistently pay off your balance in full and on time but you're not putting all of your expenses on your credit card, it might be time to start. Having a higher credit limit can help you do that. The conventional wisdom says that you shouldn't charge everyday expenses like groceries and gas to your credit card, but that advice only applies if you're carrying a balance - it's designed to help you avoid making a bad problem worse.

If you never carry a credit card balance, paying for recurring expenses on your credit cards won't cost you anything and can help you earn more rewards. Those rewards can actually reduce your spending in other areas by helping you pay for vacations, gifts, clothes and nights out. (To learn more, read Rewards Credit Cards That Give Back The Most.)

Lets You Make Large Purchases Efficiently
You already know that using your credit card to pay for large purchases is convenient and can help you rack up rewards. What you might not know is that your credit card likely includes a number of consumer protections that can come to your rescue if there is a problem with your purchase. For example, MasterCard's protections include extended warranties, price protection and coverage for damaged or stolen items. American Express offers similar benefits. Check your credit card agreement to see what protections apply to your cards.

Helps You Avoid Credit Score Dings
One way to get access to more credit is to get another credit card, but increasing your limit on an existing card might be a better option. According to FICO, opening a new credit card can ding your score. When you open a new account, it shortens the length of your credit history, and a longer history often means a better score. The age of your oldest account, the age of your newest account and the average age of all your accounts are factored into the length of your credit history, and this metric affects around 15% of your score.

The Bottom Line
If you know you're likely to spend up to your credit limit no matter how high it is, that major drawback will outweigh these benefits of increasing your credit limit. Otherwise, consider requesting an increase. It's usually as simple as sending an email to customer service. (For more information, read How Many Credit Cards Should You Have?)

Related Articles
  1. Savings

    How Volatile Exchange Rates Affect Your Vacation

    Those ever-changing fluctuations can make a difference in anything from your hotel room to an ATM transaction.
  2. Credit & Loans

    Can Corporate Credit Cards Affect Your Credit?

    Corporate cards have a hidden downside. If the company fails to pay its bills, you could be liable for the amount and end up with a damaged credit rating.
  3. Credit & Loans

    Millennials Guide: Picking the Best Rewards Cards

    There are perks a-plenty on offer, but you have to find the right plastic for your lifestyle.
  4. Investing News

    What Is The New Credit Card Chip Good For?

    Under current U.S. credit card requirements, credit card issuers are required to issue chip cards as of October 1, 2015. Instead of swiping your card as you do now, you will slide the card into ...
  5. Credit & Loans

    5 Ways to Maximize Your Credit Card Points

    How to get the most bang for your rewards buck.
  6. Investing

    How to Effectively Compare Credit Card Rewards

    There are so many different reward credit cards that are available. Understanding how each type work will help you pick the best card for your needs.
  7. Credit & Loans

    Your Credit Score: More Important Than You Know

    Credit scores affect key aspects of your personal and professional life. Knowing your score and managing your credit input can make a big difference.
  8. Credit & Loans

    Joint Credit Cards: The Pros and Cons

    A joint credit card may sound like an easy way to split the bills, but make sure you know what you’re getting into first.
  9. Credit & Loans

    Travel Tips: Avoid Exchange Rate Headaches

    How to avoid the most common issues and hassles raised by exchange rates while traveling abroad.
  10. Investing

    Why U.S. Credit Cards Are Getting a Chip and Pin

    With the introduction of EMV technology into U.S. credit cards, consumers should worry less about fraud and counterfeiting.
RELATED TERMS
  1. Credit Rating

    An assessment of the credit worthiness of a borrower in general ...
  2. Transferable Points Programs

    With transferable points programs, customers earn points by using ...
  3. Luhn Algorithm

    An algorithm used to validate a credit card number.
  4. Roll Rate

    The percentage of credit card users who become increasingly delinquent ...
  5. Truncation

    The requirement mandated by the FTC for merchants to shorten ...
  6. Purchase Money Security Interest ...

    A security interest or claim on property that enables a lender ...
RELATED FAQS
  1. Is it possible to have a credit limit that's too high?

    Consumers trying to improve their credit scores are often advised to increase the credit limit on their credit cards. A key ... Read Full Answer >>
  2. Why would someone change their Social Security number?

    In general, the Social Security Administration, or SSA, does not encourage citizens to change their Social Security numbers, ... Read Full Answer >>
  3. What is the difference between "closed end credit" and a "line of credit?"

    Depending on the need, an individual or business may take out a form of credit that is either open- or closed-ended. While ... Read Full Answer >>
  4. What types of liens are seen as good and which are bad for my credit?

    Creditors that allow purchases to be made through financing often require property to be pledged against a credit account; ... Read Full Answer >>
  5. What are the typical requirements to qualify for closed end credit?

    Typical requirements for a consumer to qualify for closed-end credit include satisfactory income level and credit history, ... Read Full Answer >>
  6. What is the best way to start to rebuild your credit after a bankruptcy?

    Bankruptcies can be devastating to your credit score. Even worse, a bankruptcy will be listed on your credit report for between ... Read Full Answer >>

You May Also Like

Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!