You open the mailbox and there’s an envelope addressed to you. It’s not a bill (who wants bills???) so you tear open the envelope. Is it a letter from your favorite aunt? Is it a few photographs from a friend’s recent trip? Is it a letter from a secret admirer?
No, it’s a letter from your credit card company and they’re writing to tell you some exciting news: You’ve been approved for a higher credit limit. All you need to do is call them back and tell them that you’re interested in accepting it.
Your first thought is: “Wow, a higher credit limit! Just imagine what I could do with that!!!”
And your second thought is: “Hmmmm… do I NEED a higher credit limit? That just means I could potentially owe more money.”
A higher credit limit on your credit card could be good or it could be bad. If you’re hoping I give you just one answer, sorry; that’s not what you’ll get from me because there is no single right answer.
Should you accept that higher credit limit? It depends on a few things:
First, the increased credit limit won’t immediately impact your credit score, since it’s not part of the credit score algorithm. However, it CAN impact your credit score if you allow your balances to get too high.
Second, it depends on whether you need the credit on your credit card. As mentioned above, you might not need the credit in some other way but it might be helpful on your credit card. For example, if you are just starting out with a credit card and you have an introductory limit of $500, maybe a boost to $1000 might be more helpful, especially if your income will still cover that.
Third, it depends on whether you can be disciplined with your credit card. Ultimately, if you do choose accept the credit limit increase on your credit card, you need to remember to stay disciplined and to always pay down your credit cards in full each and every month.
So accept that credit limit increase only if it makes sense for you in the long term and if you can remain disciplined enough to pay it off if you use it.