There are many factors that go into how large your credit limit is, whether it is high or low. For example, if you have a long credit history and are seen as someone trustworthy to the credit card lender, then you may be given a high spending limit. This can be both a good and bad thing, depending on how responsible you are with your cards.
One advantage of a high-limit credit card is financial security. If you do find yourself in an emergency where you have to use your credit cards, then you will be thankful that you have a high spending limit. This is because you won’t need to worry about going over your limit if you are forced to spend a lot, but are unable to pay it off right away. It other words, it can ease your mind or financial stress levels if you know you have a high spending limit for that reason.
Another reason it can be good to have a high spending limit is that you are sure to be able to take full advantage of any rewards the card might offer. Let’s say you have a $1,000 credit limit, but you want to purchase an item for $1,500. Obviously you will not be able to purchase the item just on the credit card, and will have to use another form of payment. If you are earning rewards for your purchases on the card, then you will not be able to take full advantage of them because your limit is too low.
Another common reason is why many people often suggest that you should increase your credit limit is that a high credit limit could help your credit score. If you have a high limit but a low balance, it improves credit utilization, which is a factor in determining your credit score. For example, if you have spent $1,000 on your credit card. If your limit is only $2,000, you have a 50 percent credit utilization, which is very high. But, if you have a high spending limit of $10,000, then the utilization is only 10 percent, which is significantly better. Having a high spending limit helps your credit score in that way.
Of course, it’s not all roses. For many people, a high spending limit simply means more opportunity to get themselves in to debt. While some people view a high limit as extra security in times of an emergency, too many people view it as them having a lot of extra money to spend. If you see it like this, then you can get into debt in a hurry spending well beyond your means. This way of thinking is fueled by a false sense of there being no financial consequences for spending on credit. The average American faces credit card debt. This serves as a possible indicator that too many people are financially irresponsible and view a high spending limit on a card as a blank check, which can get them in to trouble.
Generally speaking, it is a good thing to have a high spending limit on a credit card, and there are many advantages about that. However, if you are not responsible, then it can be a very bad thing for your financial health because it allows you to potentially get into a lot of trouble. Just be responsible, and that high spending limit will be a good thing.