Jun03
The Many Advantages of a High Credit Limit
It may seem quite counterproductive to have credit cards with high credit limits. But, the truth is that your high credit card limits may actually be helping you achieve your financial goals. Here’s why:
- A high credit limit improves your credit score – Have a credit card with a high credit limit increases your debt-to-income ratio, which comprises about 30 percent of your overall credit score. Therefore, a credit card or two with a high credit limit boosts your debt-to-income ratio, thereby raising your credit score. However, there’s a catch: every time you spend on your credit cards, your credit score lowers. Spending a bit doesn’t affect it much, but spending at or near your credit limit surely does. It is therefore vital that you never flirt near your credit limit for any length of time.
- A high credit limit provides you with a financial cushion – A credit card is a very useful financial tool, particularly if you find yourself in a financial emergency. Having access to a large credit line is incredibly important because it protects you financially if you need access to cash in a pinch. From a broken down furnace to emergency travel plans, having access to a credit card with a high credit limit is invaluable.
- A high credit limit allows you to keep the cash at home when you travel – If you travel on business or pleasure, a credit card can be your best friend. However, a credit card with a low credit limit won’t get you very far. Instead, a credit card with a generous credit limit allows you travel and charge everything from your airline tickets to your hotel room and leave the cash at home. In addition, using credit cards for travel also affords you a number of protections, including everything from travel interruptions to lost luggage.
- A high credit limit allows you to transfer higher-rate balances – If you are currently paying too much interest on other credit cards or loans, having a credit card with a high credit limit will allow you to transfer those higher-rate balances onto your credit card with a competitive interest rate.