Some people may consider credit cards with high limits as a symbol of status. However, there are also some risks involved in having a too high limit set for the credit card. When evaluating whether $20,000 is a suitable credit limit for you, there are several factors that one needs to keep in mind.
What is Good about Having a $20,000 Limit
More Flexibility The credit limit essentially determines the amount of leeway one has in terms of spending. In this case, it is unlikely that one will be unable to make a large purchase or face an emergency where the card is maxed out since the limit is set at $20,000. You will have that borrowing power intact if need be.
Higher Credit Score Potential Generally, higher limits are beneficial for your credit score because having more credit available yet unused is always favorable. It will also always help to have a high limit because it demonstrates to lenders that you have been given more credit capacity in the past. This means that you are likely to be a good candidate for borrowing, thus making your score rise.
Lower Credit Utilization The Credit utilization ratio is the percentage of the total amount of credit made available to one that is being used. Ideal credit utilization should not exceed 30 percent; however, this depends on the type of credit card in consideration. This means that with a $20,000 limit, you can charge more before crossing that 30 percent threshold than if you used a lower-limit card. The most ideal thing a holder of a credit card can do is to ensure that the rate of usage is as low as possible.
The ability to make large purchases The ability to make large purchases. Having a higher credit limit also means that you can make big purchases such as appliances, furniture, or any other expensive item without any concern. This can be much more advantageous than obtaining a separate credit for those large purchases.
This paper will be analyzing the Disadvantages of having a $20,000 Limit
Overspending Temptation Freedom to borrow such an amount of money may result in extravagance in some individuals. Other consumers view a high limit as a license to spend more. This is especially more so with a limit so far from what some may be used to, thus making it very easy to override the limit.
Higher Potential Balances & Interest Charges These credit limits, especially if you do take advantage of that cash advance with a limit of $20,000, are not hard to reach. The higher those balances go up, the more you will end up losing on the back of interest. You could end up paying over $2,000 per year in interest even if you only had a balance of $10,000 depending on your rate.
Higher Risks For You If You Default A credit card with a credit limit of let’s say $1,000 is not almost as damaging as when one defaults on $20,000 on the same credit card. Not only is a default likely to damage your credit much more severely, but creditors may also be more willing to sue you to get their money back. Failure to repay such an amount proves more about one’s financial management or lack thereof.
Screen: Is Your Credit Profile Ready? However, before applying for a credit card with such a high limit, you should first evaluate your creditworthiness. Other factors that influence the ability to responsibly use such a line of credit include income, other outstanding debts, assets, credit score, and credit history. For instance, if you have a poor cash inflow or other critical outstanding payments, say, $20,000 can be too much at this time.
Here are some guidelines for managing a $20,000 credit limit
If upon reviewing the pros and cons and assessing your financial situation you determine a $20,000 credit limit is suitable for you, keep these tips in mind: If upon reviewing the pros and cons and assessing your financial situation you determine a $20,000 credit limit is suitable for you, keep these tips in mind:
Pay your balances off in full each month: Having a balance leads to accrual of interest charges which will outweigh any rewards earned or convenience credit offers.
Create account alerts: Most credit card firms let you receive personalized notifications based on aspects such as account balances going up beyond a particular level. These should be used to remain informed.
Don’t charge more just because you can: Just charge things that you would have bought anyway because if you are not careful you can easily find yourself in a cycle of credit. One should not increase spending with the limit as being higher because this project can hurt budgeting if not closely watched.
Review statements frequently: But don’t just create it and then leave it alone to gather dust. It is recommended that the charges are reviewed often so that one can easily tell whether there are charges that are fraudulent or charges that have been recorded incorrectly.
Have an emergency savings fund: Use your available cash when it is needed to pay for something that was not planned for instead of using a credit card. Avoid relying on the credit limit cushion to avoid learning how to be smart with the credit limit.
Ask for limit decreases if needed: If at any point that $20,000 limit becomes too tempting and leads to overspending, do not hesitate to ask for a lower limit. A majority of issuers usually allow reasonable changes to credit limits.
This is how Card Issuers decide on Your Limit There are no published standards to indicate the specific factors that credit card companies employ in setting the limits. However, based on consumer experiences, experts say that factors like the following often impact numbers: However, based on consumer experiences, experts say that factors like the following often impact numbers:
- Income
- Past liabilities or debts and past or current assets
- Credit score
- Credit history length
- Applications for new credit:
- Utilization of credit line in the current period
The type of card one applies for also influences numbers. However, the best travel rewards credit cards, or the cards targeted to affluent customers usually provide higher credit limits to the applicants at the outset.
Take time to inquire whether the Initial Limit Offered can be negotiated It may be helpful to know if the first credit limit granted when getting a specific card does not seem enough, you can always contact the card issuing company and inquire if the limit can be adjusted. However, this is especially true if you have a positive history with that particular financial institution. There is no certainty but if you are reasonable in your request and have good reasons for your request they may offer you a higher maximum initially.
The Credit Limit that became the bottom line was $20,000 Credit limit of $20000 or more is not normal for applicants if they do not have good credit and income. However, the ability to borrow such a sum is very helpful when making a large purchase and positively affects credit history. However, with the higher limit, there are more dangers should careless spending happen.
It is important to pay due diligence to the reason why you feel such a ceiling is necessary. If you manage credit wisely already but may benefit from the flexibility sometimes, it can be useful. However, if you are a first-time credit user or if you already have credit indebtedness, it is possibly too steep at the moment despite the glamorous digit being associated with the card. Just like any credit decision, act based on rationality that is relevant to your status. However, one should not be carried away by such feelings as jealousy if friends have higher limits to go and get loans on the same since this puts the financial status of the individual at risk.
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