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Pros and cons of changing your credit limit

We understand that things change. That's why we've made it possible to increase and decrease your credit limit to make sure it works for you. Changing up your credit limit could be a good way to achieve a goal, but it could also be risky – here's a few things you should know.

Potential pros of a credit limit increase

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

Potential downside of a credit limit increase

Increasing your limit could:

  • Be a factor down the track, as lenders consider your credit limit when you apply for a home loan (the bigger the credit limit, the bigger the liability to lenders)
  • Tempt you to spend more money, which might not be a good idea if you can't pay it back
  • Increase the interest you're accruing – having a higher credit limit makes it easier to overspend and could make it harder to pay off your full balance each month.


Potential pros of a credit limit decrease

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 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

Potential downside of a credit limit decrease

Decreasing your credit limit could:

  • Make it easier to go over your limit, especially if you're used to a higher limit
  • Impact your credit score – this is because your credit score takes into account your credit to balance ratio (so if you have a lower limit, this ratio will be higher compared to a higher limit with the same balance). Find out more about credit scores.
  • Mean that you're stretched for cash if you need a large amount suddenly for an unexpected expense.

Keep reading

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