Has it ever happened to you that you get that phone call from your bank, and they offer you the incredible opportunity to extend your credit limit? Or maybe you got the call where they offer you credit card especially for big executives out of the blue? Congratulations, you’ve joined that select club of many having a good credit history. Your bank has been watching you for several months and has found you to be a satisfied customer and worthy of the opportunity to spend more.
The first feeling is natually exciting, as the bank itself knows that you are increasingly responsible and capable of paying high amounts of money.
However, when this offer is made, you should definitely ask yourself: “If I already have a card with enough credit, why do I need more?
An increase in your line of credit or an additional card increases your spending power. But, as attractive as it may seem, remember that you are also increasing your debt.
So here are the main factors you should consider to know whether or not you should accept the offer of credit limit increase.
How many credit cards should you have?
The perfect combination is to have only two credit cards. With this formula, you will have one card with a high credit limit (for large purchases and emergencies) and one more, with a reduced limit for daily use. Now everyone wants to offer you a card to make special purchases (flights with points, discount nights, etc.). But remember that if you want to raise your score, continuity is also important. This means that when opening and closing credit accounts, it is considered as instability, something that may lowers your points.
If a store offers you something extraordinarily good, something you already had planned, you might even consider it. In these cases we suggest asking you the following question: Do I really need another card to buy something I already had planned? Many times the offer you get is good, but if you accept it, you’re also missing the opportunity to score points on the cards you already have. And you should remember that opening more credit accounts will probably affect your score, so it may not be worth it.
The general recommendation is never to accept new cards. Remain faithful to the existing cards and forget about the others.
Can You Afford More Credit?
Many of us feel that the first thing we feel when our credit is increased is like having a pay raise. But remember that using this balance will create a debt for you. The basic question you should ask yourself is simple, and the answer should be completely honest:
Can you really afford more credit? If you can’t handle your debts outright, don’t consider the increase.
However, it is not necessary to be able to pay off the entire line of credit, only a percentage as explained below.
The Optimal Debt Levels According to Your Numbers
A healthy debt is one that does not exceed 30% of your monthly income, this means that you should not designate more than 30% of your verifiable income in debt.
However, this does not mean that you cannot have a larger credit line. The recommendation when using credit cards is that you only use up to 60% – 70% of the credit limit. This means that you may have a higher credit limit than you normally use (and you can easily repay), but you should not use all the money you borrow.
Having More Credit Can Help Your Credit History
The main advantage of having a high credit line is that banks and financial institutions will pay more and more attention to you. And if you’re one of those who pay off the debt on time, then you’ll be eligible for better credit (with lower interest rates) and higher credit (like a car loan or mortgage). If you have a proven track record and pay off high lines of credit, banks will more easily offer you a large loan whenever required.
Having More Credit As An Emergency Fund
If you are already saving, then you probably have Emergency Fund saved. It is recommend that you do not keep this “fund” in a bank account, but instead invest in a risk-free financial instrument. With this formula, your saved money will be growing, but you can only touch it once a month, and that’s where your card with a high line of credit comes into the equation. Because in the event of an emergency it can save you and you know you’ll have access to your frozen savings in no time.
If Credit Rises, Do Collections Also Rise?
Increasing your credit line will also increase your minimum payment. Remember that this is not only a benefit for you, but banks are looking to put more capital into cardholders so that their monthly payment grows and they increase their collection.
In the case of Total Annual Cost (TAC), commissions, ordinary and delinquent interest and cash withdrawals normally remain fixed. However, this is a good opportunity to negotiate with your bank, look for them to accept the increase in your line, lower your CAT or give you another benefit.
The Secret To Keeping This Increase, Is Discipline
The key to maintaining this new credit increase or card is to keep your spending habits under control. Keep your debt level on time with your payments and always make payments above the minimum required, preferably paying in full each month.
Remember that – Having more credit can work to your advantage if you don’t raise your spending level.