How to make your Credit betterMaking your credit better
Use your credit line to your benefit
Part of the restriction that credit cards put in place is what is known as your credit limits -- the amount you are permitted to lend. It' simple to see your credit line as a way for your credit cards company to keep an eye on you. However, knowing your limits can also give you some degree of oversight - and help you turn it into better credit.
Which is a credit line? The credit cardholder will determine which credit line you are eligible for by penetrating your credit histories. Unfinished balances, recent mortgages, your credit limits for other credit lines, your credit histories (including missing payments) and your credit records all provide a true view of your finances.
When you are a low risk because you do not have sufficient earnings to repay your loans, or if you have failed to repay your loans in the past, credit cards may provide you with a credit line that is lower than the one you requested. When you are charging more than your credit line, be ready to make the payment.
Remember, however, that your local financial institution may regard you as a breach of your credit contract - and withdraw any 0% credit transfers you have, or apply a sky-high APR. Wearing a credit or debit near your credit line is almost as risky as exceeding it.
When your credit is always close to your limits, you are violating your credit because of something known as a "credit utilization rate". "This relationship relates to how much of your prospective credit line you actually use. Creditors like to see lots of room to breathe between your credit and your credit line.
It shows that you are able to keep your debts under wraps. Whilst there is no agreement on a secure amount guarantee for the debts to be transferred, the credit bureau Equifax advises you not to exceed more than 30% of your credit line. If I want a higher credit line, what happens? When you want to raise your credit limits to help your credit utilization, you can easily ask your credit service providers for an uplift.
You have a better chances of winning if you have had the map for a while (at least three to six months), kept to your limits and paid on schedule. "An important piece of guidance that will help achieve an increased credit line is the rigorous credit line balancing of current debts, where a good portion of the month's balances is paid," says Neil Munroe, Equifax's foreign relations manager.
However, a high credit line is usually not a good thing if you don't really need it. This will not necessarily increase your creditworthiness with creditors. Actually, it could make it even harder, Munroe says. Strong credit lines allow the consumer to get deeply into debts and this could make a prospective creditor upset.
Finally, if you choose to take full credit of the high credit line value, you may not be able to pay for your vehicle. "Raising a credit line can be seen as an increase in your possible debt and could therefore affect your ability to get more credit elsewhere," Munroe says. Control of your LimitAlthough sky-high credit lines could jeopardize your good credit rating, your institution may still try to increase your credit line up.
The " rewards " for good behavior could lead you further into the trap of indebtedness, which means more interest income for your emitter - and lower creditworthiness for you. Historically, credit limit increases have been permitted for cardholders to notify the holder retroactively. During 2010, the federal authorities concluded an arrangement with credit cards firms and bankers restricting this practise.
Today, bankers and credit cards must notify the cardholder 30 working days ahead that their credit limits are about to be increased. The cardholder then has the opportunity to unsubscribe from the increment - and to unsubscribe from any further increments if they so wish. Creating a balance by using your credit line to your benefit is a complicated balance act.
You should ask your borrower for a small increase if you keep checking your credit line. But don't let your limits rise so high that they become a banner for other creditors. The most important thing is not to consider your credit line as a "target" or the amount of debts you can allow yourself to pay.
While your limits provide a useful guide, it is up to you to keep your own spend under tight rein so that it becomes a level you never exceed.