Credit Cards. Is It Time For An Increase?


rodney bukuya - is it time to increase your credit card limit.

is it time to increase your credit card limit?

Are you one of the few people that use credit cards responsibly and never get into trouble with them? Congratulations, you are part of a small yet slowly growing minority.

You’ve probably also got a low limit on your card which has served you well over the years but is starting to be a hindrance because of rapidly increasing costs of living. Your ability to pay off your card hasn’t been diminished, just the amount of things you can use it for and therefore the cards relative effectiveness is starting to be impinged.

You wonder: “Is it time to increase my credit card limit?”

At least that’s the question I read on the wall of Facebook Group – Queensland Business this morning from Professional Pet Sitter, Aunty Vanessa (O Briain), owner of Gold Coast Pets.

She asks: Would love your opinion: I’m thinking of increasing my credit card limit. This is a credit card I use for business expenses from my car (mechanic) to other purchases. It’s been $2K for YEARS now. I’ve never been late with payments (I’ve auto BPay payments every week that make just over the minimum payment) … as well as putting extra money on it every so often too

I’ve paid it off 100% a few times.

Do you think the bank will increase it?

The general consensus from the group of business owners is that getting an increase should be pretty easy. At least with the limited amount of information the group had been given.

But in the world of finance today, there is no such thing as an easy question so I thought I’d  share some of my thoughts in case, like Vanessa, you too have been considering increasing your credit card limits.

The Points that immediately sprang to my mind:

  1. Does she really need to increase her credit card limit?
  2. Should the bank increase her limit?
  3. What limit should she have?

1- Do you really need to increase your limit?

Vanessa had shown great responsibility with her card and lot’s of people could learn from her example. Had something in her business changed that now demands she need more available credit? Or was it just a whim?

It turned out that Vanessa’s card no longer served her needs as much as it used to and the seasonal nature of her business meant that she also suffers from income volatility. Increased expenses and income smoothing are good reasons to increase your card so long as it’s used judiciously.

Have you considered using Visa Debit instead? Save some dollars in an appropriate account in the good times to use for future major expenses such as car breakdowns and large annual bills. I like this method because savings can also earn interest in online accounts until they’re needed.

One of the respondents advised that credit cards are a good way to track expenses but for me it doesn’t work as an ability to track me doesn’t stop me spending money I don’t need to.

2- Should the bank increase her limit?

Vanessa had been self employed for over a decade but if you’ve been working yourself for less than two years, you might struggle to get an approval depending on how well you went with other credit scoring measures.

Vanessa has been very good at paying off her debt each month but that’s not always a good thing in the eyes of a bank. She may still get rejected.

Banks absolutely hate clients, who pay off their credit card debts on time, on small limits, as there is no money to be made for them. You pay very little interest and no overdue fees.  Good for you, crap for them.

Did you know that one of the largest sources of complaints to the financial ombudsman is from people who within a few weeks of coming out of bankruptcy start getting credit card offers from ALL the banks, who know they can start getting their hooks back into a credit addict. Scary but true.

3- What limit should you have?

If you decide to go ahead and apply for an increased limit, know in advance what limit you want. The girl on the counter is an employee of the bank and it’s her job to achieve a certain level of sales target each week. You become part of that target.

If you only want to increase it to $3,000 make sure the person you talk to understands that. I’ve seen bank staff explain to a customer the contract they’re signing but completely gloss over the fact that they now have a $30,000 limit even though they only asked for $5K.

Like I said above, you become part of their daily sales target and they’ll justify it by giving you some corny sales pitch such as “Just because you have it, doesn’t mean you have to use it” or they’ll say something like “You never know when an emergency might hit and it’s better to be prepared”

Credit cards, as with other forms of debt can be invaluable wealth management tools. They can also be extremely dangerous if not used properly. Know your weaknesses and strengths in this area and have a game plan that works for your household.

4 thoughts on “Credit Cards. Is It Time For An Increase?

  1. Karen Buttery

    I cut mine up and it was a great feeling. Now we only have a visa debit card, so if we don’t have the money we don’t spend it. I am always talking about getting rid of bad debt and financial freedom, so we wanted to get rid of ours and lead the way. Definately they can be useful in certain circumstances, but so many people get into trouble with credit cards. Great article Rodney, I enjoy reading your blogs

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    1. rodneybukuya Post author

      Hi Karen, I cut my credit card up and moved to Visa Debit 6 years ago. Lots of people do get into trouble with Credit cards and they are better off without them. Having said that, it’s not the credit card that is the issue. The problems stem from the psychology and programming of the user. Our society that encourages a buy now, pay later mentality doesn’t help.

      I didn’t cancel my credit card because I’m a Financial Planner who knows how to get a better result elsewhere. I cancelled it because I’m a Financial Planner who knows that sometimes the best solution to a long term problem is to remove some of the short term temptations. I’m like most people who get a better result from their money by not having access to it.

      It’s also one of the reasons why I love Superannuation so much. The psychological benefit of knowing that you’re contributions are inaccessible until you retire is very powerful.

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    2. Aunty Vanessa (@gcpets)

      My problem with living off purely my Visa Debit Card is that when I have a big cost come up that does need to be paid for now (I can think of many where businesses and circumstances won’t allow YOU to “pay it off” they’d rather you “pay it off” your credit card)…. yet I do not have the income… what do you suggest I do ?

      As Rodeny mentioned, it’s about the end user (ie me) not the credit card. I pay off the minimum every month and if I have an influx of cash will pay down the debt. Some people may see the CC as bad debt yet for me I use it for business expenses … I’m not racking up debt in regards to buying the latest fashion, eating out, etc.

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      1. rodneybukuya Post author

        Thanks for buying in Vanessa, You could always have a second Visa Debit account. One for living off as you do now and a second one for business. Pick a percentage of each week’s income (say,10%) and put it into your business Visa Debit account. This is harder for self employed people and even harder for self employed people whose businesses have a seasonal variability to them but probably more important for them than anyone else.

        If 10% is not a feasible number for you, just make a decision to put a small amount aside each time you do your banking. If it’s used with the same discipline that you have with your credit card, it shouldn’t take you long to build up a worthwhile amount.

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