Credit Limit Increases Helps Credit Scores!
Credit limits and the balances on your lines of credit account for almost 1/3 of your credit scores
Many are scared to death of the consequences from credit limit increases but most of the time the reasons are only misconceptions. Now if you think you will use all of the limit and carry a balance, don’t increase your limits. But if you are just worried that raising your limits looks bad on your credit report, then this article will hopefully change your thinking. When you raise your credit limits on your cards and your balances stay the same, your credit scores should grow! Better credit scores means better chance of approvals and better interest rates. So let’s go over why credit limit increases are a good thing for you…
Why Will Credit Scores Increase By Raising Credit Limits?
When you raise your credit limit on your revolving accounts like credit cards or lines of credit, your utilization rate decreases. What does that mean? It means that you are using a smaller percentage of your credit limits which makes you look better to the credit bureaus. The credit bureaus see that you are better able to manage your debts or lines of credit because you are not maxed out. How important is this? The utilization of credit lines makes up 30% of your credit score! 35% is how well you pay bills on time so that shows you how important it is.
Best Way to Increase a Bruised Credit Fast
Which do you think is the fastest way to increase your credit scores if you have some credit issues in the past?
- Buy a car and finance it with a loan
- Get a loan with a finance company and make payments just to build credit
- Stop using credit until the old credit rolls off your report
- Open a couple of credit cards & use correctly
Too many people choose the first 3 options. Usually the reasons for choosing the first 3 is because of being given bad advice or just not understanding how credit scoring works. So the best way to establish credit is #4) Open a couple of credit cards BUT only if used the correct way. The best way is to charge a small percentage of the credit limit on something you need like gas, pay the bill off in full on-time, and repeat. By doing this you have on-time payments without borrowing money and paying interest for no reason, plus you receive a lot of points for owing a small percentage of your credit limits. Remember, 30% of your score is based on this ratio so spend wisely and watch your scores go up!
Other Benefits of a Credit Limit Increase
One benefit of having a higher credit limit is for an emergencies. If something comes up where you need to make a charge and your credit limit is too low, this can put you in a bind. So by having a higher limit, you have access to emergency funds. Remember though, just because the credit is available doesn’t mean you have to use it. Higher limit credit cards should also increase your chances of having perks or rewards such as gas discounts, gift cards, or airline miles. By showing your great experience in using credit cards, other credit card companies take notice of this and so you will receive offers for possibly better cards. This could also be a bad thing with extra junk mail of course. Last but not least is that higher credit scores doesn’t just help you get better interest rates or qualify for a house. Many other areas of your life depend on credit such as insurances, employment, and there is no telling what else.