Is A Credit Limit Increase On A Credit Card Good Or Bad For Your Finances?
Most people aspire to pay down their debts and encounter considerable challenges in doing so, but not everyone has the same motivation for paying more than the minimum payments on their credit card bills. A small but vocal minority wants to pay down their debts, including credit card bills and home mortgage, and never borrow again. Partisans of the zero-debt lifestyle are fond of saying that if you do not owe any debts and you have ten dollars in your pocket, you are rich. Most people have a different goal, however, one that is both more modest and more ambitious than simply being debt free, namely, they want to pay down their debts in order to increase their borrowing capacity. For example, their goal might be to qualify for a car loan or a home mortgage. Credit limit increases on credit cards can increase your borrowing capacity, but in some cases, applying for a credit limit increase can negatively affect your credit score. If you are trying to avoid bankruptcy or are rebuilding your credit after a bankruptcy filing, a Philadelphia consumer law attorney can help you see the big picture about credit limit increases.
Freebie Credit Limit Increases Are Almost Always Good News
If the credit card company makes the unilateral decision to increase your credit limit, it means that you have been doing something right. Credit card companies only increase customers’ credit limits if the customer has paid at least the minimum payment for many consecutive months. In some cases, the credit card company may increase your credit limit because you have not made any purchases recently and it fears losing you as a customer. A higher credit limit means a lower credit utilization ratio, which boosts your credit score. The only way this kind of credit limit increase can go wrong is if you use it to charge major purchases that you cannot afford to repay without accruing lots of interest.
Tread Carefully When Applying for Credit Limit Increase
Credit card companies sometimes send letters inviting borrowers to apply for a credit limit increase. Whether the benefits of applying for a credit limit increase outweigh the risks vary on a case-by-case basis. The credit check that goes along with the application could lower your credit score by a few points. This is only a problem if you are planning on applying for another loan that has a strict credit score cutoff; if you can get the new loan with a credit score of 695 but not with a credit score of 690, then don’t apply for the credit limit increase now. If you really want or need the credit limit increase, contact the credit card company and ask if there is a way to complete the application without a credit check. For example, instead of a credit check, the credit card company might ask you to send other documentation, such as your pay stubs for the past several months.
Contact an Attorney for Help
A consumer law attorney can help you avoid missteps as you rebuild your borrowing capacity after struggling with debt. Contact Louis S. Schwartz at CONSUMERLAWPA.com to set up a free, confidential consultation.