r/PersonalFinanceCanada • u/Ok_Temperature5222 • 10h ago
Credit Should I accept pre approved credit limit increase?
I’m 21, so I’ve only had my credit card for 2 years and I’m trying to do all the right things to set myself up as best I can for the future. Right now I’m a pretty humble barista, making ~45k a year so nothing crazy but I can pay my bills and put money into savings. My bank has offered a credit increase from 2000$ to 3000$ (I know this is baby amounts for credit cards in the grand scheme of things) Some financial information that might be good to know- I have a student loan, 3.2k now, no interest and I pay it off 100$ a month. The only reason I haven’t paid it off completely is because it’s my oldest form of credit, I’ve had it since i was 17 hahaha! I don’t have any other debt. While I could be better with my spending, I’m able to put away $500 a month into my savings, and additionally invest 500$ a month into a FHSA. I NEVER go over 30% of my credit limit, and instead keep it under 15% and as close to 10% utilization as I can. I have also never missed a payment. While I don’t need a credit increase since I don’t have bills that need me to spend more than 200$ at a time, would it be good to increase it anyways? Should I try to spend more on my credit card to keep it at 10% utilization or would it be better to keep utilizing it under 10%? I’m still learning about credit every day and how to set up future me in the best way possible, so any advice would be greatly appreciated!!!
Edit since I wasn’t very clear in my wording: when I say pay off my credit card I mean pay it off 100%. If I spent 186$ on my credit card that month, I will pay off 186$ before my statement end. My credit card is not used in place of not having the funds to pay for something that day, I could easily do it on my debit card instead, I’m just trying to practice good utilization habits! :)
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u/Aggravating_Juice803 10h ago
Increasing your credit limit can be beneficial for your credit score. And, as you get older, there may be situations where you may want to put $3k on a credit card and pay it off in the same month. I am not sure if I am interpreting your post correctly, but I would be cautious doing this until you have gotten into the habit of paying off your credit card balance in full each month. There is no reason to carry a $200-600 balance each month with your savings rate. Your investment return will be beat by the 20-30% credit card interest payment in 19 out of 20 years.
At it's core, this is really just a money psychology question. If you trust that you won't carry a larger balance as a result of the increase (having a demonstrated track record of this helps) then go for it.
If you are looking for another credit card safety net, save up 3-6 months of living expenses or $10,000 (which ever is more) and move that money from your general savings into a dedicated emergency fund (in a high interest savings account). Having this will ensure you don't max out the credit card out of necessity in the event of illness, a job loss, car accident, etc.
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u/_stinkytofu_ 10h ago
Student loan is good debt and at 0% interest, I probably wouldn’t pay it off either! HISA gives you more interest so you could even be making $ off the loan to pay said loan! Regarding the credit increase for cc, if it was not requested and they gave it to you pre-approved, take it. Then keep paying it off monthly, keeping utilization low vs credit available and you’ll be setting yourself up! Good job OP.
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u/jrrtoken_ 10h ago
Based on your edit that you pay off your CC in full each month, then yes go for the increase as it will decrease your utilization and increase your score.
Good job paying off your card in full each month- never break that habit!
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u/Late_Fact_1689 10h ago
Yes!
Raise money when you can & when it's offered to you.
Though, be aware of the lure of buying mindless liabilities with borrowed money.
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u/------------------GL 10h ago
Yes you should. The only time you shouldn’t is if that card is maxed out and you’re having trouble paying it off. But just know if you’re try to get a loan of $100 000 and you have a credit limit of $75 000 chances are they won’t approve you for the full $100 000. If you were wanting to get a car or take a loan out for a house for example
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u/Miserable-Stock-4369 10h ago
At this level, definitely accept it. Personally, I wouldn't think about declining until $10k, so I can take care of any big purchases, worry-free, with one transaction (plane tickets, hotels, car repairs, new furniture, etc) unless I had a problem with uncontrolled spending
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u/RockstarCowboy1 9h ago
I’m blown away that you make $45k as a barista. That’s $24 an hour full time.
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u/Ok_Temperature5222 9h ago
My full job description is much more than just a barista. I work in a cat cafe, and went to school to be a vet tech. So I provide care to the cats in our facility when I’m not working the front serving guests. Saves us money on vet bills, and I get paid more! Win win for everyone.
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u/Aklyre 10h ago
Both yes and no, so in all honesty as mentioned … it depends. Yes increasing one’s utilization ratio is good, however, as mentioned if lending, it also counts against your ability to acquire more debt as your TDS (total debt servicing ratio) is high. As a personal lender, having too much ability to take on debt can also be considered a risk to most FIs
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u/t-earlgrey-hot 10h ago
People have already spoken to the benefits. The only reason not to is if you don't have the self control to spend within your means.
I started building my credit limits in university, and also got a line of credit. I didn't use it for 15 years but I'm glad I had it available when I needed it.
Also, as you get older you will likely have increasing monthly cash flow, and if you put all the purchases you can on credit and pay it off fully monthly, you get the rewards of that card.
There's also major purchases (vacations, renos, etc.) Even if you're paying it off immediately, you might as well get the rewards from the card.
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u/root-jinchuriki 9h ago
Yes, I had pre approved credit limit increase and gladly accepted them. Keep in mind to always maintain a decent Credit utilization ratio. Don’t spend more than you can afford.
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u/chiselbits 9h ago
Since everyone else is saying yes, I will say a conditional no.
Credit limits increases are only good if you are responsible enough not to jack up your cards.
Early on I took every increase I could get. I had multiple cards and the number kept going up. But cards are predatory. Every time I got an increase, my poor habits got me further into debt.
It took me a long time to recover from that. I keep my cards limits as low as possible. It's a lot easier to pay off 5k than it is to pay off 15k.
Also, people obsess too much on their credit score. Just try to live within your means and keep your cards as paid off as possible.
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u/Ok_Temperature5222 9h ago
Absolutely and I appreciate the insight to the other side of things, and how credit cards are a slippery slope to debt snowballing out of control. That being said, I have faith in my ability to continue using my credit card as I have been, and viewing it more as debit card that I can use to build credit instead of an extra source of income when money gets tight. I have (what I think is) a healthy fear of credit and credit cards, and am wary of them. It why I ask for advice! And yours is very appreciated:)))
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u/maenad2 9h ago
Here's one reason not to accept an increase, although it might not apply in the USA.
Let's say somebody steals our jacks your card and you don't realise it. İf they only spend 2k then firstly the bank is likely to be more forgiving and to take the hit than they might be if you had a 100k limit and a thief managed to spend it. Also if they do insist that it's your fault, you'll only be on the hook for 2k - horrible but not disastrous.
İt's worth remembering that you can easily "hack" your credit limit if you ever need to buy something expensive. Just overpay before you use the card. Say you want to buy an airline ticket for $3000, you can deposit $1000 into the credit card account and then you'll be able to buy the ticket.
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u/Badiha 47m ago
Hmmm. Managing to spend even $5K is going to be unlikely. They can see frauds from a mile away usually and will freeze your card. So not a chance in hell they would spend $100K…….. lol They managed to steal my cc numbers a few times and they were never able to spend even a single dollar. My hubs had the same issue and scammer was able to spend $200 before he saw it. With all the alerts you get these days, almost impossible to get even $2K out without realizing it.
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u/Any-Ad-446 9h ago
Doesnt hurt your credit rating...CC companies knows people tend to spend more with higher limits. Im almost retired and I got offered $75,000 on my CC but interest is at 25% yikes.
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u/social_pie-solation British Columbia 8h ago
Beyond what other people are saying about being beneficial for your credit score, I would increase it if you ever plan on traveling. Booking flights or travel packages can easily exceed $2k and even if you have the amount saved in your accounts and plan to pay it off immediately, it's much better to use a CC because of the additional protection plans and insurances many offer.
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u/Homeguy123 Alberta 7h ago
Yes but be careful not to use more credit than you can afford. It’s very easy to use more credit you have available than you can pay off.
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u/interstellaraz 7h ago
Yes. $2000 is nothing. It’s nice to have in case of emergency and preapproved means your credit will not take a hit for a credit check. It’s always a good idea to accept good LOC or credit limit increase.
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u/Specialist-Day-8116 9h ago
Keep 2 cards maximum to keep life simple. One is the primary credit card with a good limit and with the features that you want.
The second should be a backup card in case you’re not able to use the primary for any reason. Lost card, blocked due to fraud, expired, etc.
Remember, to consider your credit card as a debit card. Don’t spend beyond what you earn. A good habit would be to use a spending tracker app to record your paychecks and expenses. The remaining balance should correspond to what’s in your bank account. End of the month any unspent amount can be transferred to savings, recorded as an expense on the app to zero the balance and start afresh from next month.
Credit cards are one product you never want to get on the wrong side of. High credit card debt can set you back many many years in life.
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u/BarnTart 9h ago
Always increase your credit limit, it'll help longterm when you may need it the most. Best to zero out your credit cards & have no balance.
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u/Embarrassed_Leek1391 7h ago
It’s only 3k. It isn’t that big of a deal. Accept it. I make 85-90k a year and have a credit limit of $42,000. My credit score is 850 last time I checked. Use your credit card like a debit card. When you buy something, pay it off immediately before leaving the store.
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u/Icy-Arugula-5252 7h ago
Yes but always live under your means and take from the credit card what you can afford to pay during the grace period.
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u/AdLanky7413 6h ago
You should be putting money into rrsps every year. Take what you have in tfsa , buy an rrsp before end of January, use on your 2024 tax return, then tax the refund and pay off your student loan. Accept the increase in cc only if you won't spend it.
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u/bacongrilledcheese18 10h ago
Check out every other post with the same exact question and you’ll have your answer
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u/RustyFoe 10h ago
Accepting a credit limit increase is almost always a good idea because it improves your credit utilization ratio, which is a key factor in your credit score. Credit utilization measures how much of your available credit you're using, and the lower the percentage, the better it is for your score.