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How your high credit limit affects your overall credit rating - The Bills.com Blog
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How your high credit limit affects your overall credit rating
Question: What are the potential risks with having a high credit card limit ie.$10,000 and above?
Answer: The most obvious risk of having a large amount of available credit is that it provides you with a means to spend impulsively on large-ticket items you might have otherwise not purchased. For example, if it?s the week before Super Bowl Sunday, and you decide you just must have that 52" LCD HDTVthat is on sale, along with the sound system, the HD tuner, and the HD-DVD player, having a credit card with a $10,000 credit limit could be a real danger. Many consumers find themselves overextended by overspending on their credit cards, without realizing how much their purchases will cost them, especially if they are only making minimum payments on their credit cards (keep in mind, my making only minimum payments it could cost you up to three times what you originally spent and up to 15+ years to pay the balance off!)
However, despite common belief, overspending is not the reason most Americans find themselves in financial trouble. Rather,
studies have shown that most consumers tend to use credit wisely, only to find themselves unable to continue making payments due to unexpected job loss or serious illness. So, as long as you trust yourself to spend responsibly, having a credit card with a high credit limit should not put you on the road to financial ruin.
The other issue that arises with high credit limits is that it COULD benefit your credit score, since credit utilization is a key factor in credit rating. If you have a very high limit and you are only carrying small (or zero) balance, this could look good for your FICO score.
So, as long as you spend responsibly and manage
your credit wisely, having accounts with high credit limits poses little risk. However, if you plan to carry accounts with high credit limits, make sure that you control impulse spending, and keep your overall amount of available credit under control, as these two factors could cause problems if not kept in check. For more information about credit, credit scoring, and credit reports, I encourage you to visit the Bills.com Credit Resources page at http://www.bills.com/credit/
I hope this information helps you Find. Learn. Save.
Best,
Bill
www.bills.com
Also, make sure to get a free financial health check-up with Bills IQ!
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Bill has answered all sorts of questions and has been able to provide those in need of financial guidance with helpful and valuable advice and information on their specific financial area of interest. If you need specific guidance on any of the above mentioned financial areas, feel free to Ask Bill your financial questions and get better informed. Also, make sure to get a free financial health check-up with Bills IQ!
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