What All Credit Card Holders Should Know About Credit Limits
Credit Limits Explained
It’s common practice nowadays for credit card companies to increase their customers' credit limits without even letting them know or getting their “approval” first. One day you’ll have a $2,000 credit limit, and the next time you look at your monthly credit card statement you’ll notice your credit limit has been increased to $2,800. Before you think of an increased credit limit as a license to spend, there are some things you need to know.
How Credit Scores are Calculated
Credit scores are important. They determine what interest rate you’ll get on credit cards, what type of mortgage you’ll qualify for, and even whether or not you get a job, in some cases. Your outstanding debt does impact your credit score, but there’s another element that will also impact your credit score -- your debt to credit limit ratio.
Simple Math
Now, this isn’t a math lesson, so we’ll go easy on you. Essentially, your debt-to-credit-limit ratio is determined by how much debt you have divided by the total credit extended to you. If you’re near your credit limit when your limit is increased and you call to have your limited lowered back down, your debt-to-credit ratio hasn’t improved.
When a credit card company raises your credit limit, you’ll actually improve your credit if you don’t charge up your card because your ratio will improve.
Take advantage of this insider information to improve your credit score without much effort in your part. Contrary to what some people say, credit cards aren't bad. It's what some people do with them that can hurt. Without your credit cards, you wouldn’t be able to build a credit score. Increased credit limits can actually work for you, not against you.