The following post is from Melissa Batai
If you use your credit wisely, you may find that your credit card company will occasionally, randomly, increase your credit line. This will likely be done without your knowledge or approval. Yet, is an increasing credit limit a bad thing? Should you refuse credit card limit increases? The simple answer is, it depends.
Should You Refuse Credit Card Limit Increases?
If you have a spending problem and an increased line of credit simply seems to be an opportunity to spend more, then it’s wise to call the credit card company and ask them to reduce your line of credit. The less open credit you have, the less chance you’ll rack up the balance so high you won’t be able to pay it off every month.
When You Should Accept the Credit Card Limit Increases
However, for the most part, you should be happy when the credit card company increases your credit card limit spontaneously. There are several reasons for this.
Responsible Credit Card User
First, if the credit card company increases your credit, they believe you’re a responsible user. In contrast, when they see you racking up balances and paying very little, they often decrease your credit limit spontaneously. So be glad you’re on the opposite side, and they’re increasing your credit.
Likely Will Improve Your Credit Score
A credit card limit increase will likely improve your overall credit score. Why? Well, one of the factors in your overall credit score is your credit utilization level (sometimes called debt-to-credit ratio). If you have $10,000 of credit available and you have a $5,000 balance, your credit utilization level is 50%. (In general, your credit score is higher if your credit utilization level is below 30%, ideally below 10%.)
If you get a sudden credit limit increase to $11,500, now your credit utilization level is 43%, getting you closer to that magical 30% credit utilization level without you having to do anything. This is why a credit limit increase will help your credit score.
Looks Better When You Apply for Loans
When banks are giving loans, they want to make sure they’re loaning money to responsible borrowers who will be able to pay back the loan on-time. One way they make this determination is to look at your credit cards. If you have $20,000 in available credit but you only have a $1,000 or $2,000 balance, the banks know that you act responsibly with your credit. You have a lot of credit available, but you only use a tiny portion of that.
The more credit card companies increase your credit line spontaneously, the more responsible you look.
Final Thoughts Should you refuse credit card limit increases? If you have problems with overspending or if you have trouble paying down your balances, you can ask your credit card company to quit spontaneously