A reader asks HerMoney CEO Jean Chatzky whether she should update her salary information in order to receive a credit limit increase.
Twice a week, our CEO and resident money guru Jean Chatzky tackles your burning questions in the HerMoney newsletter. We’ve pulled some of the best to feature on our website — and this one made the cut! Got a question for Jean? Send it her way right here.
Q: Today’s question comes from Eda. She writes: “I often receive emails inviting me to update my salary information to obtain a credit increase. What are the pros and cons?”
A: Great question, Eda. Obtaining a credit increase, as you noted, does come with some pros and cons. So let’s dive into them, shall we?
First, the pros:
- It goes without saying that upping your credit limit can give you more spending power. That higher limit can be useful if you have a big purchase coming up, or in the event of an emergency. Note, though, it can tempt you to overspend, too, so be careful (more on that later).
- A higher credit limit can also lower what’s called your “credit utilization ratio,” or in other words, the amount of credit you have available to use compared to the amount you’re actually using. The lower your credit utilization ratio, the better when it comes to your credit score.
Now, the cons:
- For some people, the bigger the credit limit, the bigger the temptation to spend. If you do take advantage of a higher credit limit, be sure you can keep your spending in check.
- If you’re requesting a credit increase, some lenders will perform a “hard inquiry” on your credit report. This can temporarily lower your credit score.
- If you carry a balance, a higher credit limit may result in a higher minimum monthly payment.
The bottom line? A higher credit limit can be good, but you need to make sure you can be responsible and that the hike won’t lead you into a cycle of overspending.
MORE ON HERMONEY:
- Ask Jean: “Should I Buy Used Luxury Items?”
- Ask Jean: “What’s A CD Ladder?”
- Ask Jean: “What Do You Do When Your Dream Job Doesn’t Come With Your Dream Salary?”
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