What Not To Do When Your Credit Limit Increases

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If you recently received an increase in your credit limit, it’s important to understand how to utilize it. Credit limits are a key aspect of your personal credit score, so it’s important to be aware of how to best use this limit — and how not to use it. Here are a few money moves to avoid making when your credit limit increases.

Don’t Max Out Your New Credit Limit Increase

Now is not the time to make a major impulse purchase or go on a spending spree that accumulates more unnecessary debt. Thomas J. Brock, CFA, CPA and expert contributor at Annuity.org, said the worst thing you can do is to spend impulsively with a credit limit increase.

“Spending beyond your means will derail your budget and negatively affect your credit score,” Brock said. 

A credit limit increase is not free money. Avoid impulse spending or purchasing a large ticket item, such as a car, if you are unable to refinance the purchase or pay it off in full. Try to avoid financially overextending yourself and accidentally winding up in a position where you are unable to repay this debt.

Don’t Suddenly Open Multiple Credit Cards

Marcus P. Miller, financial advisor at Mainstay Capital, does not recommend opening additional credit cards in a short timeframe. Miller said this is a quick way to lower your credit score, as each credit inquiry will affect the score. 

Have you been submitting an excessive amount of credit card applications or making a lot of requests for credit limit increases on any existing cards? Slow down, as these requests may negatively impact your credit rating, too. Be selective in how you plan to make adjustments to your financial status, now and in the future.

Don’t Eliminate Other Credit Lines

In theory, this may seem like a rational money move, but it’s actually a big mistake to eliminate other credit lines — especially if you have long established lines of credit.

Brock said credit scores reflect individual and aggregate credit line information. Eliminating a credit card, even one that is seldom used, could adversely impact your credit score.

Don’t Shift Balances Between Cards

Miller said shifting balances between cards typically comes with fees that far outweigh the benefits.

Don’t roll lower interest rate debt into a newly increased line of credit either, said Gary Grewal, CFP and author of “Financial Fives.” “This will only increase your interest charges and not be a strategic use of that money over the long term.”

Don’t Lend Money to Others

Your credit card increase is not an opportunity for others to treat you like a human ATM. Grewal said this is money you still owe, not just no-strings-attached money in your checking account. 

Don’t Borrow Against a Credit Limit Increase

Peter Casciotta, owner of Asset Management & Advisory Services, said not to borrow against a credit line increase and let the money sit stagnant and not work for you.

“We know this as ‘losing money safely.’ Inflation alone will eat at the principal, not mentioning the cost to borrow,” Casciotta said.

Don’t Be Unaware of Your Credit Line Increase

“Be aware that if your credit line has been increased and borrowed against, it may reduce your credit score, as well as decrease your opportunity to borrow money in the near term,” Casciotta said.

Don’t Ask for an Additional Increase

You might feel good about being granted a credit line increase, but think twice before asking for an additional increase. 

“Asking for an additional increase will likely result in a ‘hard pull’ of your credit profile and a downgrade to your credit score,” Brock said.

Don’t Stop Paying Off Debt

It feels nice to have a little extra wiggle room with a credit line increase, right? Just don’t forget to keep putting forth effort into paying off any credit cards currently carrying balances. 

“Having a higher limit doesn’t mean you have less debt than you did yesterday,” said Lauren Anastasio, director of financial advice at Stash. “Keep working towards paying down any debt you have.”

The Impact of a Credit Limit Increase

“Generally, those who consistently utilize less than a third of their credit limit are viewed as fiscally prudent, while those who utilize a greater proportion are seen as overextended and less creditworthy,” Brock said. 

The way you utilize your credit limit, Brock said, is estimated to account for 30% of your credit score. Exercise caution in how you treat a credit line increase.

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