Raising your credit limits can, believe it or not, actually hurt your credit rating if you are not careful. Here are a few suggestions, depending on your circumstances, on what to do if you want a higher limit on credit in which you can spend.
First option: Don't do it at all. If you have trouble keeping your spending habits parallel to your ability to pay back what you owe, you should probably not even ask for a credit limit increase. Having a higher credit limit may only be too great of a temptation to spend more than is in your ability to repay, leaving you deep in debt and short on good credit scores.
Second option: There are some occasions when you are in need of something that will cause you to charge over your limit. In this case, raising your credit limit is a must if you want to avoid spending money on penalties and keep from decreasing your credit score. But sometimes you just have to give in and take what's coming to you.
You could ask for the increase anyway and just face the consequences of lowered credit scores. If your credit score is high to begin with, this may not be too severe of a blow, but if you have a high score, why not keep it that way?
Third option: Get an account review from your lender. An account review is sort of a check up on your credit report. Lenders perform these sort of reviews periodically to see if you're qualified for higher limits, whether or not your interest rates should be raised, whether they should close or renew your accounts, and etc.
If you ask for one of these with a specific inquiry about whether or not you qualify for a limit increase, it's less risky than asking directly for a limit increase. Many lenders increase your limits occasionally, whether you ask them to or not, based on your credit history.
The key to getting an automatic limit increase is paying your bills on time. Showing that you can manage your credit and pay your credit cards off often will show lenders that you are responsible. They reward you by giving you wider boundaries to spend within, but it's still important to spend within your means so that you can maintain your good payment history and keep a high credit score.
The biggest question concerning your need for a higher credit limit is, "Could I pay it back if I spent that much?" No matter how high your limit is, you still have to pay back what you spend.
So which is better, more or less? Experts say there is no ideal number of credit cards to own. The amount of plastic you carry should depend on your spending habits and ability to pay off debt. The following factors will help you decide how many credit cards you need.
Consider your Balances
As you analyze your credit cards, look at how much you carry on each one. The best balance to have is roughly 25% to 50% of the total credit limit allowed on the card. So if you have a $5,000 credit limit, you will want to maintain a balance that is less than $2,500. If the amount is greater than this, future lenders may view you as a potential risk. If you run into financial trouble, it could be difficult to pay off a balance that is more than 50% of the credit limit.
If you want to make a purchase that exceeds 50% of your card's limit, consider splitting the balance on two cards. Doing this lowers your potential risk among creditors. It will also increase your chances of being accepted for more credit cards.
Keep your Debt Ratio Low
Just as it is wise to keep balances low on each card, it is important to maintain a low overall debt-to-credit ratio. This involves the total potential credit you have from your various cards. Let's say you have four credit cards, each with a $5,000 limit. You have $20,000 of potential credit. If your balances total $10,000, you are using 50% of your potential credit. If you close one of the credit cards, you now have $10,000 of debt and only $15,000 of potential credit. This hikes your debt-to-credit ratio to 67%. In this case, it may be best to not close an account.
Build a Solid Credit History
Whatever number of credit cards you have, you will want to manage your accounts wisely. Make payments on time each month and keep your balances reasonable. Also, creditors like to see a long and stable credit history. By keeping some of your cards for a longer period of time, you may improve your credit rating.
Use Credit Cards to your Advantage
You might find it easier to manage fewer credit cards. It will be simple to track payments and fees. If you need to carry a high balance on a card, consider looking for a credit card with low interest. If you are able to pay off the balance each month, find a card that offers great rewards. This way, you can earn airline miles or bonus points for using the card on a regular basis.
There is no single answer for the number of credit cards you need. However, you can find the number of cards that works best for you. Consider how much you spend and how much you can pay off each month. Strive to keep your credit card utilization under 50%. Most importantly, make sure you are able to manage the credit cards you have. Doing so will allow you to get the most out of your credit cards.
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