If you own a credit card, at some point you might receive a letter in the mail that reads something like, “Congratulations! You have been pre-approved for a credit increase!”
Some people receive these letters but don’t know why. They’re left wondering, Should I go for it and accept the credit increase, or add the letter to the junk mail pile?
The answer depends on you, your credit history, and your money habits. There’s a lot to consider.
Why you’re being offered more credit
A credit limit is a maximum amount you have available to spend on a credit card at any point in time. A credit increase means the lender has approved you to spend more.
An offer for more credit on your card is a reward (sort of). If you always make credit card payments on time and you’re a good customer, a credit increase is the lender’s way of thanking you.
CAUTION: It isn’t really a gift. Even though a credit card increase might seem like a gift, you don’t need to accept it.
Depending on your financial situation, a credit card increase might be a good thing. It might also be a terrible idea. Consider the pros and cons:
Pros: Reasons to accept a credit increase
There are definitely benefits to having more credit available on your card:
Greater spending power
With more money to borrow, you’ll have more to spend. Want to take a trip? Replace the old TV? Get a new roof? Having extra credit gives you options.
Emergency funds
In case of job loss, major car repairs, or a big vet bill… you’re covered. Just remember, this is a loan and will need to be repaid.
No hard check
If a lender pre-approves you for a credit increase, they look into your credit report. Normally, when someone does a “hard credit check” on you, your credit score loses a few points. With a pre-approval, often, only a “soft” check is necessary. Want to be sure? Call the lender to make sure they’re not doing a hard check.
Improved credit score
With more credit, you can decrease your credit utilization ratio. This ratio is a calculation indicating how much of your available credit you’re actually using. If you regularly use a large percentage of your credit, you have a high utilization ratio. A low utilization ratio is better for your credit score.