4 Misunderstandings About Credit Card Limits

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American-express-89024The definition of ‘credit card limit’ is easy to understand. It is the maximum amount of money you can borrow on your account. However, credit limits are not always well understood. Let’s look a 4 misunderstandings about credit card limits. 

Misunderstanding #1 – When I get an increase on my credit limit I can afford to put more charges on my credit card.

Often, the credit card company increases your credit limit when you have been good and paid your bills on time over time. It’s at that time, the issuer spots an opportunity where they can make more money. The higher your balance is, the more interest you are going to pay. So, never interpret your new credit card limit, it doesn’t mean you can go on a spending spree. 

Misunderstanding #2 – My credit limit is my new spending limit.

Your credit card spending should never be anywhere near your credit limit. The majority of experts suggests that you keep your credit card balance below 30 percent of your limit. When you use too much of your available credit it will actually have a negative effect on your credit score. 

Misunderstanding #3 – My credit limit will only go up, especially if I’m always paying down my debt.

Many consumers in the last few years have discovered this isn’t true, when credit card limits were slashed on many cards. In some situations, those who had their credit limit cut were actually doing everything right. 

Misunderstanding #4  – Whatever my credit limit is, that’s what I’m stuck with.

At any time you can ask the credit company for an increase on your credit limit just by giving them a call. If you can show you have an improved financial situation you could get an increase. If they say no, don’t let that get you down. 

These are 4 common misunderstandings that you no longer have to believe.