Credit card advice
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Today we've got good news and bad news for consumers. The good news is, credit lines are getting looser when it comes to credit cards. Research by the Federal Reserve showed that in October 2014, credit card issuers approved 61% of consumers requests for increased credit lines. And by February 2015, that rate had climbed to a 76% approval rate. The upshot is, for most Americans it's a matter of just asking for more credit to get it. But today we ask – is this a good thing?
Lower Interest Rates, Fewer Fees, Higher Credit Lines
For customers with decent credit rating, card issuers and banks are competing more aggressively for business by dropping interest rates and lowering or cutting out fees. There are a number of zero interest offers out there as well. And, for existing customers in good standing, banks and card issuers are proactively increasing credit limits without a request being issued. Those with credit scores between 681 and 759 were the most likely to request and receive credit limit hikes with a 90% approval rate.
Subprime Credit Card Limits Also on the Rise
And even for those with less than stellar credit, there's increasingly more credit available. Those with scores of less than 680 are classified as “subprime.” This means their credit scores are less than optimal, but these cardholders were approved roughly 50% of the time as of the February survey, which isn't bad odds. About 56% of Americans fall into the subprime credit category. Subprime cardholders are the most likely to request a credit line increase with 24% asking for more credit in 2014.
Higher Limits: Good for Banks, Bad for Consumers – Unless Used Wisely
This loosening of credit is all about banks and financial institutions making more money. The more consumers owe, the more interest they're raking in, so it's good business for them to loosen up credit (so long as the consumers pay up). But these increased credit lines may result in consumers getting in over their head. With a higher limit, they may be able only to make minimum payments or not make payments at all. Then what seems like a good thing can turn bad very quickly.
How to Make the Most of a Higher Line of Credit
To optimize your credit score, you should never use up more than 30% of your available credit line. With this in mind, obtaining a higher limit when you're carrying a balance can get you closer to (or below) the threshold that most benefits your FICO score. So, if you have a total of $5,000 in credit across all your cards and have a total of $2,500 owed, you're at 50%. If you can get your credit limit raised to $8,300, you'd be at your target.
So, in the best of worlds, you would benefit by taking a credit line increase but then not using it. That may seem to defeat the purpose of having a credit limit, but think about it like this. Every time you swipe your card and don't have the money to pay off the balance in full at the end of the month, it's like you're taking out a line. And, depending on your interest rate, it can be a high-risk loan.
How to Get the Most of Your Credit Cards
Credit cards should be used when they are necessary or beneficial (renting a car, taking advantage of rewards programs, buying items you want insurance on, etc.). But they should not be used for everyday expenses. Your goal should be to pay off your credit cards in full each month or not run up more debt than you can pay off in a couple of months. Having unused revolving credit greatly benefits your credit score. Also, never pay late or skip a payment to protect your credit file.
If you're in over your head with credit cards and other unsecured debt like medical bills, contact the law offices of John T Orcutt to speak to a North Carolina bankruptcy expert. We can explain your debt relief options if you have more debt than you can afford to pay. We offer free consultations at our offices in Raleigh, Fayetteville, Greensboro, Durham, Wilson or Garner. Call +1-888-234-4190 now and ask about our zero down bankruptcy specials.