Credit card spending limits: Should you ask for an increase even if you don't need it?
When you open a new credit card, your issuer assigns you a spending limit that you're not allowed to exceed, and if you attempt to make charges above that limit, your card will be declined. Over time, your credit limit might rise automatically, such as once you've been a cardholder for a certain amount of time. Otherwise, you can ask your credit card issuer to raise your limit – either on the basis of you having an account in good standing or because your income has gone up.
Now, the higher your credit card limit, the more temptation you might have to spend, so if your current limit works for you, you may be wondering if it's best to just leave things alone.
But actually, having a higher spending limit could work to your advantage – even if you don't plan to use that higher limit.
A higher limit could mean a higher credit score
There are a number of factors that go into calculating your credit score, but one of them is your credit utilization ratio. That ratio measures the amount of available credit you're using at once compared to your credit limit. A credit utilization ratio of 30% or under can help your score, but once that ratio exceeds the 30% mark, your score can take a hit.
Now, say you hold one credit card only and it comes with a $5,000 spending limit. That means that once your balance exceeds $1,500, you put yourself at risk of credit score damage ($1,500 ÷ $5,000 = 30% credit utilization).
Say you normally carry a balance between $1,000 and $2,000 on your credit card. You might assume that there's no need to raise your spending limit when you already have $5,000 to work with and you generally don't come close to hitting that limit. But if you wind up carrying a $2,000 balance on that card with a $5,000 limit, that brings your credit utilization ratio up to 40%, which could hurt your credit score.
Extra protection never hurts, either
Boosting your credit card limit could help your credit score improve or prevent it from taking a hit. But that's not the only reason to go after a higher spending limit. The more leeway you have to charge expenses, the more protection you have when a financial emergency strikes.
Ideally, you should have some money in the bank to tap when unplanned expenses pop up. But what if you don't? Or, what if you have a healthy emergency fund, but you land in an extreme situation where it falls short? Suddenly, a higher credit card limit could come to your rescue.
Remember, while it's true that a higher credit card limit could open the door to added spending, if you use your card responsibly, that extra wiggle room won't hurt you. If anything, it could help you keep your credit score strong and buy you added protection in the event of a financial disaster. And for these reasons alone, it's worth asking for.
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