It's possible to increase and decrease your credit limit to make sure it works for you. While this could be a good way to achieve a goal, it could also be risky – here's what should know.
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Pros and cons of changing your credit limit
Increasing your credit limit
Pros
Have access to more money
This could be handy if you're planning to book a holiday or buy a big-ticket item.
Peace of mind
It could act as a safety net in case an emergency or unexpected expense pops up.
Accrue benefits easier
Being able to spend more money means you could make the most of certain perks and benefits with your card.
Cons
Future impact
If you decide to buy a house down the track, lenders consider your credit limit when you apply for a home loan (the bigger the credit limit, the bigger the liability to lenders).
Overspend
You could be tempted to spend more money, which will have an impact if you can't pay it back.
Interest increase
If you do have trouble paying off your full balance each month, you could end up having to pay more interest.
Decreasing your credit limit
Pros
Stay in control
By limiting the amount you can spend before you have to pay it off, you could find it easier to keep on top of your balance.
Accrue less interest
Remember, it's important to pay off your whole balance (excluding any promotional or introductory balance transfer amount) by the due date each month to avoid purchase interest.
Help prevent debt
Having a lower credit limit could help to prevent extra interest and debt building up long term to a point where it's unmanageable.
Cons
It's an adjustment
Having a lower credit limit makes it easier to go over that limit, especially if you're used to a higher one.
Credit score impact
Your credit score takes into account how much you've spent in proportion to your limit, so if you have a lower limit, your credit to limit ratio will be higher compared to a higher limit with the same balance.
Unexpected expenses
You might find yourself stretched for cash if you need a large amount suddenly for an unplanned cost.
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The information contained in this article is of a general nature and is not intended to be nor should it be considered as professional advice. You should not act on the basis of anything contained in this article without first obtaining specific professional advice. Also to the extent permitted by law, Bankwest, a division of Commonwealth Bank of Australia ABN 48 123 123 124 AFSL / Australian credit licence 234945, its related bodies corporate, employees and contractors accept no liability or responsibility to any persons for any loss which may be incurred or suffered as a result of acting on or refraining from acting as a result of anything contained in this article.