Not all credit cards were created equal. When thinking about applying for a credit card there are many things to consider. This includes the benefits of having a credit card and how you can make the most of this type of credit facility. In this article we’ll also discuss the potential benefits and disadvantages of upping your limit.

Safer than Cash

Credit cards can be seen as a safer way to access money. If you accidentally lose your wallet or purse a credit card can be cancelled by calling us. Or you can lock your card in our app while you search for your card so no transactions can be made.

Build Your Credit Rating

If you’ve never applied for a loan, having a credit card can help you build up a credit report and credit score. This then provides information to lenders if you apply for other products like car loans or a home loan.

Emergency Line of Credit

Life can sometimes be unpredictable. A credit card allows for an additional line or access to credit you may not have sitting in your savings account. You can avoid the stress of emergencies by keeping a credit card for those situations where you find you need money quickly.

Consolidating Your Debt

If you have multiple credit cards, it may be worth speaking to a lender about consolidating them. Our credit card has a low introductory 5 month rate and no annual fee. This can save you money on interest charges and with a regular repayment schedule, help you reduce debt faster.

Credit card limits

Once you’ve got the hang of using your credit card, you may be tempted to increase your limit. We’ll compare the potential pros and cons of having an increased limit so you can make an informed choice about what is best for you.

Potential benefits of increasing your credit card limit

  • An instant benefit of increasing your credit card limit is that you’ll have access to more funds once approved. Our credit card has an interest-free period of up to 55 days, which can be a useful tool to help you maximise your cash flow. This only works if you repay the full balance on time every month to avoid interest.
  • Increasing your limit for a purpose such as overseas travel or to purchase a major appliance can come in handy if you don’t have the time to save for those things. Be wary of uncontrolled spending; it’s important to know your own limits and manage your expenses.
  • Paying for day-to-day expenses on your credit card and paying your full balance on time every month will mean that funds you’ve set aside to cover these purchases can be instead working for you in a savings account.

 Possible risks of raising your limit

  • An increased credit card limit may also increase your temptation to spend money. It may be better to keep a lower credit limit, that way you have a control in place to not overspend whilst still having the advantage of a borrowing safety net.
  • Your monthly interest payments will also increase with a higher limit. You would need to factor this into your budgeting to ensure you can afford the extra costs.
  • Your ability to get credit elsewhere may be impacted as an increased limit may appear on your credit report and reduce the amount of credit that can be lent to you in future.
  • Your credit card limits (not credit balances) and existing debts are taken into consideration when a lender decides how much they would consider offering to you as a loan. A higher limit means they may offer you less than you were hoping or even decline your application altogether.
  • For example if you only owe $500 but have a $10,000 limit on your credit card the lender will note the $10,000 limit as your debt, not the $500 owing.

Important bits to takeaway

It is important to understand your current financial situation before taking out a credit card or contacting your card issuer about your credit limit. This includes anticipating your likely future spending patterns based on current and past behaviours and situations that have affected you.

A useful online resource such as our budget planner calculator can help you work out how much money you’ll have available each month to make credit card repayments.

Thinking of applying for a credit card or want to know more about how to use one effectively? Get in touch with us today, we’re here to help.

Horizon Bank has a branch network spanning the NSW South Coast and Illawarra. Horizon Bank branch locations: Albion Park, Bega, Bermagui, Berry, Merimbula, Moruya, Nowra, Thirroul, Ulladulla & Wollongong.

The content in this article has been prepared by Horizon Bank for general information only and it is not intended to be professional advice. It does not take into account your objectives, financial situation or needs. You should seek your own legal, accounting, financial or other professional advice where appropriate, and consider the relevant Product Disclosure Statement and Terms and Conditions before deciding whether to acquire any products or services offered by Horizon Bank and/or its affiliated partners. We do not recommend any third party products or services referred to in this article unless otherwise stated and we are not liable in relation to them. Any links to third party websites are for your information and we do not endorse any content on those sites. Horizon Credit Union Ltd ABN 66 087 650 173 AFSL and Australian Credit Licence Number 240573 trading as Horizon Bank.