Upping your borrowing limit could have many benefits if you use your credit sensibly.
The FICO credit scoring model will ding your credit history if the amount of credit you've used is near to the total amount of credit open to you. That's because it looks at you to be at risk of maxing out your cards and having problems making future payments. You may know that these risks don't actually apply to you, but that's how the scoring model works.
When you've got a $2,000 credit limit and you regularly end up with a monthly bill of approximately $1,800, you're using 90% of your readily available credit. Increasing your borrowing limit will reduce that portion and should boost your credit score. Paying down that $1800 to $1500 will also decrease your debt-to-credit ratio which can boost your score as well. That's the best way to build credit- approach the issue from both angles and your results will exponentially compound just like combining diet and exercise (which is challenging to do as well, but also worth the results!).
When you're not using the majority of your available credit, you appear to be financially responsible to the credit bureaus and your credit rating should grow. If your credit score is higher, you'll have a better prospect of getting approved for a credit card, car loan or home loan at some point. You'll also have a better chance of getting a lower interest rate, since your credit score decides whether you'll be provided the best available rate or a higher, risk-adjusted rate.
Getting a credit limit well over your usual spending amount provides a resource if you have an authentic emergency that you can't pay for with cash. Say you're travelling and you must change your plans and return back home immediately - it probably won't be cheap to modify your plane ticket, and it's simpler to pay for an airplane ticket with a credit card.
If you consistently pay off your balance in full and on time but you're not putting all of your current expenses on your credit card, it could be time to start. Having a higher credit limit can help you do that. The traditional wisdom states that you shouldn't charge everyday expenses like groceries and gas to your credit card, but that advice only applies if you're carrying an account balance - it's intended to help you avoid making a bad problem worse.
If you never carry a credit card balance, paying for recurring expenses on your credit cards won't set you back anything and can enable you to earn more rewards. You can pay off your gas each month, for instance, and build credit that way. You might only need to spend $100-$200 a month depending on your commute. Paying this bill of shouldn't be too big of a problem if you are unemployed, and every time you do it you are building more credit so it ends up working out better than just using cash. Just be sure that you DO pay it off and don't end up with a $1000 of debt on the card after 6 months.
Improving your borrowing limit means giving yourself the opportunity to spend outside your means, right? Not so. Enhancing your borrowing limit may have many benefits if you use credit sensibly.
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