Owning a High Limit Credit Card

Is having a very high limit on your credit card really that great? Let’s look at it.

Your credit limit is much more than just the amount you can spend, it is how a credit card company estimates your creditworthiness and your ability to pay off. The higher your credit score is, the bigger your credit line will be, though the amount varies by banks.

Some issuers attract customers by offering them high credit limit right when they apply, some promise to raise it gradually. In either case you will need to prove to the bank that you are trustworthy and continuously make on-time payments.

Banks will monitor your activity, watch your payment history, look for delinquencies, etc. If you give them a reason to doubt your creditworthiness, your credit line can be reduced and sometimes considerably. This actually seems to be happening more and more often with the recognition of the fact that there’s too much credit available.

On the other hand if banks see no reason to be concerned, you might get a higher limit even you cannot afford it. Issuers notice you pay as agreed, but they do not know if you are able to pay more. These credit line boosts are used by banks to develop loyalty programs and to increase balances. It already resulted in a growing number of customers that have more credit available than they can pay off. If you were offered a credit limit increase, think twice before you agree.

Increase in your spending limit does not mean increase in your income; rather it means how much more debt you can have. So, if you cannot control your spending, you should not agree to a higher credit line. Another thing is that if you have too much of an unused credit, it might hurt you if you plan to get a mortgage or get a car loan. Why? Banks need the constant flow of funds and it is not good for them when you have all that available credit and do not think about what you can do with it.

About 30% of your credit score is calculated based on the ration between your outstanding debt and available credit. The lower the ration is, the better it is for your score. Just keep in mind the above mentioned arguments.