Credit Cards – should you increase your limit?
Have you received a letter in the mail from your bank inviting you to increase your credit card limit lately? If so, do you need a higher limit? This will of course depend on your individual circumstances and financial needs however it is important to weigh up the options.
For some customers an increase in credit card limit could lead to problems in the future. Access to more spending power may encourage you to purchase more each month leading to higher repayments and possibly paying more interest.
However, having a higher credit limit can offer some positives. It can provide an opportunity to combine balances with another credit card (often with a higher interest rate) and reduce your interest charges. A higher limit can also come in handy when you have a large unexpected expense to pay.
A new InfoChoice.com.au online survey revealed that the majority of consumers had been offered an increase on their credit card limit however most of them declined the offer. Two thirds (67%) of consumers said that they had been recently offered an increased limit on their credit card from their provider however only 11% accepted with 57% declining. Few consumers are proactively looking for a credit limit increase with only 2% of the group claiming they requested an increase themselves.
The results indicate that most consumers appear to be reluctant to simply accept the offer for more credit post the GFC. InfoChoice.com.au financial services analyst David Lalich comments “It seems that customers are becoming more financially responsible and even conservative in light of recent global events. Many consumers have learnt from others’ mistakes over the last few years and as a result more are looking to control their debt better.”
A counter trend is emerging with banks offering consumers access to increased levels of personal debt. In addition to customers being offered higher card limits we have recently seen a number of major lenders increase their maximum LVR (Loan to Value Ratio) on their home loan products allowing customers to borrow more money.
“Just because a bank allows you to borrow more debt doesn’t mean it is always the right move for the individual, customers need to consider what that extra debt means and determine if it’s really worth accepting” says Lalich.