Last week, I received an official-looking notice in the mail. You know the type: the envelope requires you to tear the perforated edges in a specific order and contains security ink so the contents cannot be seen until opened. There is a return address on the envelope but no business name.
In my experience, the more the envelope looks official, the more likely it is to be junk mail. So I ignored the mail, as I often do, and left it in my incoming “file.” Yesterday, I went through the “file” to make sure I wasn’t missing anything important, and opened this particular envelope.
The notice informed me that Citi was kind enough to increase the credit limit on my primary credit card by a few thousand dollars. I have never approached my credit limit, so I wasn’t sure why they were suddenly this generous.
A credit limit increase, if not used, is a good thing for two reasons.
If you spend the same amount with a higher credit limit, your credit utilization ratio decreases. A lower credit utilization ratio could have a positive effect on your credit score. A higher credit score can lead to all sorts of advantages, such as qualifying for a lower mortgage rate.
More credit is available to use in case of emergency. Using a credit card to help you through an emergency is rarely a good suggestion, but having credit available can be part of your overall emergency fund plan. If you need to pay a medical expense immediately or rent a car in an emergency, credit cards can come in handy. A higher limit provides more flexibility. The goal is to pay as little interest as possible, so credit usage is healthier if you can pay off the balance every month.
Credit cards companies increase limits because they want people to spend more. In today’s economic climate, they don’t want everyone to spend more, only those who they deem to be low-risk consumers. I guess I am part of this group. People like me will help cover the risk the issuers take on by offering credit to more risky individuals.
Unfortunately for the credit card companies, this limit increase won’t encourage me to spend any more than I do currently.
Updated January 5, 2016 and originally published September 22, 2008.