Today I got an interesting message where I had credit card companies telling me how I am pre-approved to increase my credit limit. As you can see like in this example I was being informed that I can increase my credit limit by an additional $5000:
I was debating at first if I should or not as I consider my current limit pretty high as it is and I don`t go crazy spending like say 80% of my limit every month. So in my mind the only real use I would have to increase my credit limit is the whole notion that it will potentially make my credit score higher.
For those who are unaware, credit utilization is your credit limit in comparison to your credit usage. For example, if you have a $10,000 credit limit and your balance is always $6000 then your utilization rate would be 60%. If you usually only have like $500 then your credit utilization rate would be 5%. Generally speaking, it is advised that you have a low credit utilization ratio as the lower the number the better it will reflect upon your credit score and history.
I can see why a bank would love it in this case as it probably encourages people to potentially shop more which means more money for them. After thinking about it, I decided to accept the offer. The sole reason? Simply as a way to potentially make my credit score better. In my situation, I always fully pay off my monthly statements and I don’t go crazy buying life luxuries that I cannot afford. So to me, I only see the positive where it will reduce my credit utilization ratio.