He's not complaining, just wondering: His credit card companies are suddenly offering him more credit when he didn't ask for it - Is this a gift horse that he should look in the mouth?
Here’s an email from a lucky reader. Or is he?
I am pretty good on reading all the things in the newsletter, but forgive me if I have missed something that is already on the site
about this topic.
Within the past week (on same day even), both of my main credit cards I use – I have three total – notified me of an increase in my credit limits. I have above-average credit. To give you an idea: I never come near my credit limits, never have made a late payment for anything in my life, and I pay my credit card balances in full every month for as long as I have had them (about 8-10 years, as I am 28 now).
I’m curious if this is a common practice taking place now, and what the reasons are behind it. So my question is not so much why trust me with more money, but why now?
I can’t remember the last time, and I think only once after college, that I received a limit increase. In light of all the new federal regulations/reform and the economy, do you think this is just a way for the credit card companies (in my case, Chase and Discover) to say they’re giving out credit and the markets are “thawing,” while at the same time making it even harder for those with even average credit get things like credit cards or loans? I just have seen other people get denied or have these new annual fees imposed, yet I am getting hikes (3k and 1k).
I don’t want to ramble and I think you get my question/point. I really hope if no one has the time to get back to me personally, this is addressed in an upcoming article. I found this site through a video on TiVo and have enjoyed it ever since. Thank you for your time.
Here’s your answer, Adam…
First, congratulations on being a poster boy for responsible money management!
As for why your credit limit is increasing, I can’t be sure. But I can make an educated guess that I’ll bet is close to the mark.
As we predicted back in December (10 Credit Card Predictions for 2011), credit card offers are skyrocketing:
“Look for more credit card information in your mailbox, especially if you have good or excellent credit. Those are the most appealing customers to issuers, since they present a much lower risk of defaulting on their loan.”
So my guess is that Chase and Discover are probably encouraging people with great credit (like you) to borrow. It costs them nothing to raise your credit limits – and if that encourages you to spend more or start carrying a balance, they win.
I did a TV news story back in 2004 about this exact thing. I went to a nearby stable and used a cooperative horse to visually describe why you should look this particular gift horse in the mouth. (Not familiar with the expression? Here’s an explanation.)
Credit card issuers are like all of us – they want to increase their returns while reducing risk. Easiest way to do that? Withhold credit to those less likely to pay while simultaneously enticing their most reliable customers to borrow by raising their credit limit.
Since you now know you’re a hot property, you may want to shop around for new cards. If you use the Money Talks News credit card search tool, you might be able to find a card with better rates. But since you pay off your balance monthly, what you’d look for is perks like rewards programs, cash back or free airline miles. You can also find those on the search page. And if you’re paying an annual fee on your cards, call your card companies and tell them to waive it: They obviously don’t want to lose you.
Take this as a good sign, Adam. Credit card companies find you desirable. Use it to your advantage!