9

My credit card company is giving me credit increases despite me not asking for them. Are there any drawbacks to an increased spending limit?

For reference I spend 25$ per month on this card, pay it off in full every month, and use it when traveling out of the country.

  • @stannius the post you pointed to asks for pitfalls to avoid with a higher spending limit, I am asking if there are things that an increased credit limit will render me unable to do in the future. (Get a new CC, car loan, etc) – Joe S Jun 28 '17 at 15:01
  • @JoeS No, it won't hurt you or render you unable to do things in the future. Assuming you keep your spending the same and pay in full, it will actually help you. – Michael Jun 28 '17 at 15:17
  • 3
    My credit card company keeps increasing my credit limit. But I continue to rise to the challenge. :-) – Jay Jun 28 '17 at 15:19
11

The only drawback is if you spend more than you can with the new limit and end up having to pay interest if you can't pay the balance in full. Other than that, there are no drawbacks to getting a credit increase.

On the flip side, it's actually good for you. It shows that the banks trust you with more credit, and it also decreases your credit utilization ratio (assuming you spend the same).

  • 2
    Yes, because the banks have proved themselves to be super discerning about whom they lend money to. – jwg Jun 28 '17 at 16:15
  • 1
    @jwg: But the banks &c THINK they're discerning about who they lend to. Not our fault they're deluding themselves :-) – jamesqf Jun 28 '17 at 16:43
6

There is another drawback, and this is why I keep a low-limit card for online purchases and another for carrying in risky/unfamiliar situations (e.g. travelling) a small limit acts as as damage limitation in the event of theft. In theory you may not be liable if your card is stolen and used. In practice you may be out of pocket for a considerable amount of time, and trying to spend large sums on an overlimit card will soon trip it up (especially if those large sums are out of the ordinary)

3

The one big drawback I know is when you take the mortgage credit, your credit ability is calculated, and from that sum all of your credits are subtracted, and credit limit on credit card counts as credit...

I don't know if it is worldwide praxis, but at least it is the case in Poland.

  • 1
    +1 for an excellent point. This is true in the US too, but not for mortgages since they are secured by the equity in the home. It is true for non-secured loans though such as certain personal or business loans. They may calculate your monthly payments as if your CC is maxed out, and then see if you can afford that along with the payments on the new loan based on your income. – TTT Jun 28 '17 at 16:24
1

Loans?

https://money.stackexchange.com/a/79252/41349

https://money.stackexchange.com/a/79261/41349

Phone/tablet app purchases

Adding to @Chris H answer about damage limitation

Online purchases could include phone/tablet app purchases, which could be an issue if you have children or you are a victim of fraud. First link from googling "Kid racks up almost $6,000 on Jurassic World in-app purchases"

Budgeting

Adding to @Michael C. Answer

I think credit cards perhaps can make it more difficult to budget, if you are more lazy/have limited savings. These might happen more long term if you don't keep track of your spending. I.e. If your credit limit matches your monthly income, and if you pay off your card each month, I think it is harder to overspend as you don't have more credit available than you can afford to spend.

However this is countered by that, a slightly higher credit limit may help to avoid fees from exceeding your credit card limit. I think due to that some/not all purchases are instantly "banked", i.e. the shop might send all of its monies to its bank at the end of the day or something like this, so you can just keep spending not realising you have exceeding your credit limit and get hit by fees.

Not the answer you're looking for? Browse other questions tagged or ask your own question.