When deciding if you should apply for a high limit credit card, there are some important factors you need to consider. While a high limit credit card gives you the opportunity to build your credit, you also run the risk of running up your debt and tanking your credit. Below is our list of pros and cons for using high limit credit cards.
– Build your credit
A high credit limit allows you to build your credit if paid on time and used often. The higher limit builds your credit because of the credit utilization factor, which is the “amounts owed” portion of the scoring formula. This formula refers to how much you are using versus how much is available to you. So, say you have a $10,000 limit, you should only be using $3,000 of the credit available to you. While if you had a lower limit credit line, you might be maxing it out and hurting your credit.
– Available to you in case of an emergency.
Should something happen, like your kitten Fluffy getting sick and needing emergency surgery at the vet, you can use the credit available to you. Not everyone has the luxury of having extra funds available to them. So keeping credit available in case of an emergency is a really smart idea.
– Convenient to pay for big ticket items
High limit credit cards are great for making high priced purchases. You can buy your new bedroom set with your card and make payments to pay it off. This is a better option than having to save up cash to make the purchase or use multiple forms of payments.
– The rewards points
Who doesn’t love having extra rewards point and cash back rewards? Instead of paying with cash or your debit card, you can use your high limit card and earn rewards. Travel rewards are very attractive when deciding on what credit card to select. High limit credit cards have some of the best rewards.
– Interest rates
With greater rewards, comes greater risks. If you cannot pay your monthly bill, you’re at risk of having higher interest rates with a higher limit. These credit cards are known to have higher APRs than standard credit cards.
– Greater debt
Higher limit means more opportunity for debt. When your “amounts owed” reaches onwards and upwards of 50%, you are becoming undesirable to potential creditors and doing harm to your credit.
– Theft risk
If your card gets hacked or stolen, they have more credit to work with and ring up. Make sure you have all of your credit card theft alerts turned on.
– Spending beyond your means
Overspending and buying things you really can’t afford will eventually cause you to be in debt. Credit cards with high limits can lead you to live beyond your means and put you in a really bad financial position. Some tips for keeping your balances low: understand the interest rates, pay in full every month, leave your card at home, and set-up alerts on your phone.
– High annual fees
Many high limit credit cards have annual fees associated with them just for the privilege to use the card. Make sure to read the fine print and look at all the fees associated with the card during and after the first year.
If you have decided to take the plunge and apply for a high limit credit card, here are a few tips from us:
- Check credit score to ensure you have excellent credit, high income, and a great track record for making payments before a hard inquiry is made on your credit report.
- Make sure you’re keeping your “amounts owed” to the expert recommendation of 30% (this is how much you’re using versus how much is available to you).
- Keep the limit at a level that you can easily pay back.
- It is safer to purchase high ticket items with a loan or to save up!
There are many factors to consider when contemplating getting a high limit credit card. It’s important that you be smart about your decision and realistic. If you are ready to take the plunge, click here to get matched with the best option.