Friday, January 5, 2007

Credit Line Increase: Good or Bad?

Yesterday, not fully knowing what a credit line increase entails, I requested one from Citibank and was approved. My initial, titillating, yesss-I-got-it! moment was quickly followed by bewildering thoughts of what-did-I-just-do, so I did some catch-up reading to make sure that a credit line increase was actually a good thing...

Caveat debtor: A credit line increase is not always a good thing.

A credit line increase can be good when you don't define "credit available" as "cash available." "Cash available" is what you can afford to pay off in full when the credit card bill arrives at the end of the month; "credit available" is what the credit card company will allow you to charge, regardless of whether you can really afford it .

Some banks (like Citibank) will, when asked, gauge your creditworthiness based on your payment history before offering you an increase (or not). Other credit card companies offer automatic increases, calling them "rewards," without ever checking your individual circumstances. (If you don't want the increase, you can simply call the company to refuse it.)

Short story: Take the credit line increase
only if you won't use it anyway.

As long as you don't let a credit line increase affect your spending habits, it can be a positive influence on your credit score. Your credit score is based on a few key factors:

Things such as applying for too many credit cards in a short time period, or late/missing payments to anyone (from mortgages to department store credit cards, to car loans, to the installment plan for your computer or dining room set) will lower your credit score. Because FICO takes the percentage of available credit used as an indicator of creditworthiness, the less you use, the higher your credit score will be.

For more tips to improve your credit score...
For more info on credit cards limits...

7 comments:

MollysBrother said...

Stopped by your blog today. Great posts! Helpful and informative...and, by the way, sorry about the traffic tickets.

WH said...

Hi MB - Thanks for stopping by...I always enjoy your blog! And the ticket did its work; from now on, I will definitely spend the extra 5 minutes to look for parking!

creditandmortgageindex said...

I quote from your original post:

credit card companies offer automatic increases, calling them "rewards," without ever checking your individual circumstances. (If you don't want the increase, you can simply call the company to refuse it.

And people get so excited and happy to see that they have got more credit and they usually think that it is the sign of a positive and a very healthy credit history so now they are allowed to ABUSE it.

I never get my credit line increased. I believe that my credit line should stay BELOW my bank balance. This way, I know I can never fall in debt and never be able to get out of it!

You have got some excellent posts here. I invite you to post your reviews on my website bad credit loans with your due credits.

raghukura said...

Great...Thank you for the information.

amy said...

hi! i came across your blog when i googled 'is a credit line increase good or bad?' and your post was very informative and well written unlike some of the odd search results that were returned...

i'm just dropping a line here (or several) to let you know that i will be an avid reader of your blog from now on! you are on my rss feed!

thanks again!

Anonymous said...

Rather nice place you've got here. Thanks for it. I like such themes and anything that is connected to them. BTW, why don't you change design :).

Credit Repair said...

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