Most people are ecstatic when they receive a credit card for the first time. However, this momentous occasion has its downfalls, as evidenced by the fact the average American household has around $16,000 in credit card debt.
When most people take out a credit card for the first time, the bank places a relatively low limit on the card. It may be $1,000 for the first year, and then you have the option to increase your limit. Many people take the bank up on this offer, but there are reasons why you should second-guess increasing your limit.
Possibility of taking on a lot of debt
If you pay off your credit card in full every month and know you can handle the additional responsibility, then you probably have nothing to worry about with a higher limit. However, if you find yourself struggling to pay it off, then you do not want to assume the risk. You need to recognize when you do not have the capacity to effectively use a credit card. There is no need to put yourself in a difficult situation.
Hard inquiry on credit report
Some banks will automatically provide you the option of increasing your credit card limit. For other institutions, you need to request it. The latter can trigger a hard inquiry into your credit history. This has the potential to decrease your credit score for up to one year. This is detrimental if you are thinking of buying a house or a car in the near future.
Uncertain employment future
You should not request a credit card limit increase if things are sketchy at your place of work at the moment. If the company is starting to lay people off, then you may soon be on the chopping block. In the event you take a lower-paying job, you may not be able to pay off a higher credit card balance. As long as you go about the process wisely, you should have little to fear.
