Unrequested credit limit increases

Everybody likes presents, especially surprise ones but not all presents are created equal. So how would feel about your credit card provider sending you a little gift in the form of an increased credit limit? Is that a good present or a bad one – let’s find out.

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Why do providers increase credit limits?

Credit card companies might increase your limit for a number of reasons. It’s most likely that you’ve been highlighted as a ‘good risk’. Which means you’ve been reliable in making your monthly repayments and providers up your limit in the hope you’ll spend more and in return they might be able to squeeze more interest out of you.

Providers might also increase your credit as an incentive for you to stay loyal. If they periodically up your spend you might feel some loyalty to them because they’re ‘looking after you’.

Is a credit limit increase a good thing?

Whether it’s a good thing or a bad thing ultimately depends on your level of self-control and also what your current financial situation is. Debt charity StepChange, carried out a survey and found 54% of those they asked, had seen their credit limit increased without requesting it. Of those asked, 49% had said it had made their existing debt problems worse.

Clearly, if money’s already a little tight then being given even more to spend is never going to be a good thing; let’s not forget, it’s not free money – if you do spend on your credit card you have to pay it back and often with interest if you don’t pay it back on your next statement . And sometimes, having all that temptation is simply irresistible.

Of course, having an increased limit can help with those little extras and if you manage your credit card with military precision then you might welcome the extra credit.

In terms of your credit score, increasing your credit limit might be a good thing though. In a perfect world you should only use about 25% to 30% of your available credit. So a slight increase might balance out your existing spend vs credit availability level; making you a better long term risk.

Back on track – rejecting your credit increase

Just because someone gives you a gift, doesn’t mean you have to accept it (bit rude you might think). And just because your credit’s been upped, doesn’t mean you have to go with it – you have 30 days to reject it. If that’s what you’ve decided to do, then you’ll need to contact the provider and tell them so. You could also request a reduced limit if you want to have a lower limit on your card.

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What credit card is right for me?

There are lots of credit cards to choose from and which one’s right for you will depend on your own unique circumstances. If you’ve got an existing debt that you want to get under control, take a look at balance transfer cards – you might find a better repayment deal than the one you’ve currently got.

If you’re intrigued by the concept of a ‘cashback’ card and want to find out if it really is too good to be true then read more about them in our ‘What is cashback?’ guide. And if the whole concept of a credit card is all a bit daunting then discover the basics on how credit cards work.

If you need a credit card but are worried about having a bad credit history then you can find out more about how to build your credit or apply for a card specifically aimed at those with bad credit.

Whatever you do, don’t put up with uncompetitive interest rates or bad service, simply comparethemarket and switch.

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