Posts tagged: smart_credit

Top 3 Myths Surrounding Your Credit Limits

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Credit card limits allow us to set a range of the amount of money we can spend on credit. When used appropriately, this limit will help keep us from spending beyond our means to pay back the amount owed plus interest. So why have so many people gotten into credit card debt by spending on a high credit limit when they knew that they would not be able to pay it back?

Sure, a high credit card limit can be alluring because it makes it look like you can spend all you want and have whatever you want. But a smart credit card holder would know the difference between what looks good, and what will save them money in the long run.

Top 3 Myths Surrounding Your Credit Card Limits

There are a few misconceptions that people often experience when they set their credit limit. Credit card companies can lead them into believing myths that will eventually get them into financial trouble. Here are a few of those myths:

• The Higher Your Credit Limit Is, The Better

Credit Card companies would like you to believe that it is good to have a high credit card limit, and that is true… it’s good for them. High credit limits increase the possibility of excess spending, or spending beyond your means. That leads to larger amounts of money to be paid on your bills, which may cause you to make late payments. Of course late payments result in higher interest rates, making it even harder to pay your dues. Eventually it will take you longer to pay off your credit card debt because you spent more than you can pay back.

• Going Over Your Limit Is Okay If Your Credit Card Company Approves It

Whether or not you pre-approve a purchase that will go over your limit with the credit card company, it will still hurt your credit score dramatically. Your credit score doesn’t depend on whether or not you have authorization to go outside your credit card boundaries, it depends on whether or not you can stay within your limit, no matter what it is, and efficiently pay back what you owe. So even if the credit card company says it’s okay, you still appear unreliable because you went over your set limit, therefore significantly lowering your credit score.

• A High Credit Limit Will Not Threaten Your Ability To Pay Off Your Credit Cards

The best way to stay out of debt is to not allow your spending opportunities to go beyond your reimbursement abilities. If you can easily see that you could not pay back the money you would owe if you spent up to the amount on your credit limit, you simply should not set your limit that high. Keeping your debt as minimal as possible is everyone’s goal, and the debt you incur is more likely to increase if your credit limits are high enough to tempt you to spend beyond your means.