DRUNK I TELLS YA. DRUNK.

Hey, remember how we’ve talked before about emergency funds? And how they suck more than people who fake Bigfoot sitings? In case you haven’t, here’s the half of one paragraph summary. Non-dirtbags don’t need emergency funds, since they have credit available. They either have a credit card with a $10k limit or some sort of pre approved line of credit against real estate. If an emergency comes up, all they need to do it use their available credit, and then either sell an investment to pay off the balance or take their time paying it off over a few months, depending on the interest rate.

But having thousands of dollars just sitting on hand waiting until the you know what hits the fan is just plain dumb, especially for people with consumer debt. Even if they pay their credit card debt down by $1,000 and then immediately charge it back up again when an emergency hits, they’re still slightly better off than if they would have stuck that $1,000 in a savings account. Remember, most credit cards charge more per month in interest than what you’d make annually in a savings account.

Geez, that half of one paragraph summary ran a little long. I’m the blogging version of a 1936 Hitler speech. I just can’t stop.

Unlike many of my peers, I think you’re all adults that can handle your money. If given available credit, you’ll use it responsibly, resisting the urge to blow it on cheeseburgers and hookers. You’ll use that credit as an insurance policy, using it when you need it, but allowing it to remain unused for 99.9% of the time. I like the way you think, Financial Uproar reader. Here’s a kiss.

If that’s the way you view available credit, of course you want more of it. If some bank is willing to give you more credit in hopes you’ll spend more, you’ll welcome it with open arms. If a credit card with a decent limit is a good fall back plan, then a credit card with a bigger limit is a better fall back plan. The best fall back plan is keeping a condom in your wallet, because the last thing you need is a wallet without protection.

Keeping all this in mind, why in the actual hell would you say no to credit card limit increases?

There’s only one reason why you would, and that’s because you’re a scared little child who is afraid that an increased limit will lead to you accepting it as a challenge. There is no other reason why you’d say no to potential credit.

There are even fringe benefits to taking a credit card increase. One of the factors that credit report people look it is your ratio of credit to available credit. Say you’ve spent $2,000 of your 8,000 limit. Even though you plan to pay that off, your credit report will still show that your credit utilization ratio is around 25%.

If you consistently spend that much but then get your limit upped to $10,000, suddenly your ratio drops to 20%, and you should get a small increase to your credit score. Nothing more than a point or two, but it all helps.

Back when I was a mortgage broker, one of the things I’d tell customers with weak credit to do is call up their credit card companies looking for an increase in their limit, so their credit utilization ratios would go down. The other thing I’d tell them to do is to pay off any outstanding debts and then get a mortgage with less than 5% down, since it was the wild days of 2008. I was a good mortgage broker. Except people didn’t listen.

These days banks can’t just give you credit card limit increases. You have to phone in and beg for it. I’m not sure I’d bother, but I’ve already got more than $10k of available credit. If your card only has $2,000 or $3,000 for a limit, then maybe I’d phone. This is pretty cheap insurance, provided you’re adult enough to handle it.

 

Tell everyone, yo!