FARMINGTON HILLS, Mich. (WXYZ) – Many of our mailboxes are inundated with credit card offers. Some of them from your current credit cards are aimed at increasing your credit limit.
“The whole idea of increasing your credit limit. Do you like it? ” Alicia Smith asked Flint’s Kavina Walker. “Yeah Yeah. That’s a great thing. Yeah,” Walker replied.
“I had Bank of America, and they increased my credit limit. So that was a big advantage for sure, ”said David Rodriguez of Dearborn Heights.
Smith asked Southfield’s Rodney Ellis if he would be interested in increasing the credit limit if offered one.
“If it’s important, and it’s at a decent pace, sure. I mean in business sometimes you need that extra credit here and there. So I don’t think that’s a bad thing, ”Ellis said.
I sat down with Kristen Holt – CEO of Farmington Hills-based Greenpath Financial Wellness – to learn the pros and cons of saying yes to a credit limit increase.
“What should people watch out for when they receive these offers in the mail? Smith asked.
“The first thing is to look at the wording of the offer. If it says “may be eligible” it is very different from a letter that says “We just increased your credit limit”. “May be eligible” means you will likely need to apply and they will need to pull your credit report, ”Holt explained.
A con gets a pull on your credit report. This could have a negative effect on your credit score.
So, Holt said it’s important not to allow credit checks if you plan to buy a home or car soon, as it could potentially lower your score, which could hurt your chances of getting a credit score. low rate for this future loan.
But one of the benefits of increasing your credit limit is that it could potentially improve your credit score.
Holt said that 30% of your score is determined by your “credit utilization ratio”.
“What it is is to see how much credit you have available and how much you are actually using,” Holt explained.
For example, if you only have one credit card with a $ 1,000 credit limit and you have $ 500 in unpaid charges on that card, you are using 50% of your credit limit.
But if you get a credit boost to $ 2,000 on that card, you’re now only using 25% of your available credit limit.
“A good rule of thumb – what they’re really looking for – is that you use 30 percent or less – and that’s something I think a lot of people don’t know.”
And, remember, if you get a higher limit, that doesn’t mean you have to use all that money.
“As long as you can trust yourself, and you’re not going to take that as a license like – ‘Oo, I’ve got all that extra money to spend,’ getting that credit limit increase is going to be a pain. great help for your credit score, ”said Holt.
This is especially the case if the card company does not pull your credit report, but simply grants you a higher limit based on your history as a good customer or the card company ‘s fear of losing you. as a customer.
Holt said another pro for taking this higher limit is that it gives you an emergency cushion if you have an unexpected expense, like a car repair.
And it gives you more of an opportunity to maximize your reward points by charging for certain daily expenses and earning, for example, airline miles.
But regardless of the pros and cons, Holt said you should make a goal of paying off your credit card balance every month.
In this way your cha-chings don’t end up having a negative blows on your credit report.
So if you get an offer, weigh the pros and cons.
And be aware that some people don’t get their credit limit increased.
According to a recent survey by Loan tree, nearly a third of U.S. cardholders had their credit limit reduced or their account closed in the first four months of this year, or about 62 million people.
And this is in addition to tens of millions of people who suffered credit limit cuts in 2020.
Sometimes card issuers will lower your credit limit if – one – you are not using the card enough or – two – the card company is concerned about their finances or the economy.
If this worries you, use your card a little more, but make sure the balance doesn’t slip away.
If this is the case – or if it already is – you can get help from the association. Greenpath Financial Wellness.
The number to call for a debt counselor is (866)648-8122 or visit greenpath.com.