When you should and shouldn’t apply for a credit increase
If you’ve been smartly using credit for a few years, you’ll know that you occasionally get rewarded with a credit increase – or an invitation to apply for another loan or credit card. For some, this could be the equivalent of walking past a dessert buffet – don’t tempt me! – but taking on more debt is not all bad. We look at the instances when it’s a good idea to say ‘yes’ to a higher credit limit, and when to think twice to keep your credit score intact.
Advantage 1: Better buying power
If you need to buy a new appliance or want to upgrade your gadgets, an existing credit card is the most convenient way to do so. Remember that every time you apply for new credit, it shows up on your credit report. Therefore, instead of getting it on store credit (i.e. adding another line of credit to your list), rather increase the limit on the card you already have.
Advantage 2: Money for a rainy day
You might not need more credit right now but it will give you peace of mind to have some extra credit available in case of an unexpected crisis like emergency repairs to your car or a large medical bill. Life has a way of hitting you with expenses when you least expect it so it pays to be prepared.
Advantage 3: More credit, more rewards
As long as you stay on top of more debt, you could earn smart rewards for paying more bills with your credit card than cash. With a Woolworths Black Credit Card, for example, you get 3% back in WRewards quarterly vouchers on all Woolworths purchases and 1% back in WRewards quarterly vouchers for all other purchases (including fuel purchases at any service station). If you make all your purchases with one card with a bigger overdraft, you could score big in the long run.
When to think twice…interest piling up
A bigger limit gives you more spending power but as long as you’re in debt it also comes with more interest to pay. So unless you pay your full balance every month, the interest will start compounding over time and you may find yourself falling in a debt trap.
When to think twice…overspending
A credit limit gives you a nice framework in which to control your spending. Unlike cash that automatically restrains you from spending, credit is like invisible money – very easy to lose track of. If you don’t pay off your overdraft or bills, you’ll be hit with even higher interest.
When to think twice…the risk of rejection
You might be offered a credit increase but it’s not guaranteed that your application will be accepted. It all depends how many loans, store and credit cards you have, your payment history, when last you applied for credit and if you can actually afford it. If you’re declined it’s not only disappointing, it could also damage your credit score (read more about how a credit score works here).
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