Can I Have a Credit Limit That’s Too High?

One of the ways you can improve your credit score is to raise the credit limit on your credit card. When a credit limit is increased, it automatically lowers your credit utilization ratio, because there’s suddenly more credit available. This gives your credit score a boost. However, you may be asking a very smart question, “Can I have a credit limit that’s too high?” In certain situations, yes, you can. Consider the possible downsides of upping a credit limit below, then learn more about how to avoid common credit limit pitfalls. 

When is a High Credit Limit a Concern? 

Generally speaking, there are two scenarios in which it’s possible to have a credit limit that’s too high: 

  • Scenario 1: If you have a high credit limit, you could run into difficulties trying to obtain more credit. For example, if you have an income of $40,000 a year and $50,000 in available credit, you may be rejected for an auto loan of $20,000 because you could, at some point, max out your credit cards and be unable to repay the balance of the auto loan. 
  • Scenario 2: The more credit you have available, the more tempting it is to use it. This ties into scenario 1. You may have controlled spending habits and try to avoid common budget-killing expenses, but raising your credit limit can undo all that, putting you in a sticky situation. 

How to Utilize a Credit Limit the Smart Way

Regardless of whether or not you choose to raise your credit limit, keep the following tips in mind to set yourself up for credit card success: 

  • Watch How Much Credit You Utilize: Again, your credit utilization ratio plays a large role in whether or not a lender will approve you for additional credit. Try to keep the amount of credit you utilize across all accounts under 30%. Exceeding this percentage can negatively affect your score. 
  • Weigh the Pros & Cons: Before you increase your credit limit, think about the effect it could have on your budget, spending habits, and ability to get credit in the future. 
  • Avoid Opening Too Many Accounts: If you open a few accounts over the course of several years, it’s not a big deal. However, opening multiple accounts within a short amount of time can ding your score significantly. 10% of your FICO score is based on new credit inquiries. 
  • Use Your Debit Card More Often: Whenever possible, use your debit card to make purchases instead of your credit card. When you’re spending your own money, you’re less likely to overspend. 

Get More Credit Card Tips from Public Service Credit Union 

Whether you’ve just opened your first credit card, or you’re looking into credit cards through a credit union, Public Service Credit Union is your reliable information source. Contact us for more tips or to find a credit union around Detroit and Romulus.

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