What can you do with a sky high credit limit? I mean, what couldn't you do? If you've been told by your credit card issuer to update your earnings to find out if you're eligible for a higher credit limit, you may be wondering if it's worth disclosing that bit of personal information. I promise you it's not a trap.
When you apply for a new credit card, you have to provide your annual income. Credit card issuers are required by law to do this to be relatively confident that you will be able to pay the bill before giving you a line of credit.
But that confirmation of income may reappear later, long after you start using the card. You can log in to your account or receive an email inviting you to update your income, usually with a promise of "You may be eligible for a credit limit increase!"
If your income has actually increased since you opened your credit card, and you have significant self-control over your spending, then go ahead and update your earnings. The increased credit limit can actually increase your credit score.
That's because about 30% of your credit score is based on your credit utilization : how much of your available credit you use. Since issuers only report your statistics to credit agencies once a month, it doesn't matter if you put all the bills on the card and then pay the tab before interest rates start to accrue. Utilization refers to your revolving balance, the amount that you do not pay immediately . The lower the usage you use – you should try to keep it below 10% – the higher the score.
Of course, there is something about the credit card company. If a card issuer raises your credit line, they can increase your chance of spending more on your credit line, making them more money on the interest on your revolving balance. It is cheaper for a card issuer to keep you as a happy and consumer customer instead of attracting and acquiring new ones. But to dangle the credit line carrot in front of you, they need to update your earnings to prove that you can probably pay the bill.
To get a credit line increase, you not only need to have more income – you also need a good payment history. And if you hover close to your credit line regularly, you probably won't even see one of these offers. You must already have good credit in order to qualify for an even higher score.