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Should I accept credit limit increase?

Dr. Don TaylorDear Dr. Don,
I recently received a credit card limit increase on one of my credit cards of $2,500 without requesting that increase. The card had a limit of $3,700 and a current balance of $2,100. I would like to decline this increase. Will it hurt my credit to do so? Will they demand payment on this account immediately if I decline? Thanks for any help.
-- Phil Partake

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Dear Phil,
You can decline the increase in the credit line. Whether declining the increase is the right course of action depends on you and your credit goals.

One reason to accept the increase is that it reduces the ratio of outstanding balances to credit lines available. Being maxed out on your credit cards gives the impression that you can't handle credit. Although you only had used 57 percent of your available credit line on this card, having a little extra breathing room shows both self discipline and the ability to manage credit. The limit increase could help improve your credit score.

There's a downside. If you know yourself well enough to know that the additional credit line will act as a siren's song and cause you to run up your balances, then accepting the increase is absolutely the wrong thing to do.

Credit card companies like their customers to carry a balance. Having a cardholder pay 13.99 percent (or more) on an outstanding balance is how they make their profits. Larger balances mean more profits -- at least as long as you're staying current with your monthly payments. Late fees and over-the-limit fees boost profitability for a period of time when you can't stay current, along with an excuse to increase the interest rate on your card.

The credit card company has no reason to close your account and demand payment if you decline the increase in the card's credit line. They've just extended more credit to you, showing that they value you as a customer. You not accepting the increase doesn't mean that the company is no longer interested in your business.

-- Posted: March 29, 2005




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