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Be Skeptical of Credit Increases

It's flattering to be told, "Gosh, we like you. In fact, you're so great, we'd like to give you more money to spend!"

Don't bask in the accolades too long if they're coming from your lender.

Credit line increases are one way the banking industry rewards good customers. It's also how it rewards so-so ones, egging them on to "spend up to their potential" -- or, depending how you look at it, max out their charge cards and get into deep doody.

Contrary to popular opinion, an increased spending limit doesn't necessarily improve your looks in the eyes of other lenders. Many banks don't report credit limits -- even at the customer's request -- because that information lets competitors know more about what kind of credit risk you are. To deter poaching, they tend to keep your credit limit in the dark.

However, those trying to improve their debt-to-available-credit ratio (an important measure of creditworthiness) may benefit from increased spending limits -- but only if those limits are reported. (Here's a quick credit report anatomy lesson.)

Before you celebrate more room to spend on your cards, ask yourself:

Will the temptation be too much? Some consumers mistake their credit limit for their budget... and that's perfectly fine with some credit card companies. They'll happily give you three to five times as much spending room as you'd ever really need. Remember, your lender makes more money when you take your time paying off your balance. You set your spending limits, not your bank.

Does my score really need a boost? Are you planning to enter a loan situation in the near future where your credit record will be scrutinized? If so, there may be a better way to improve your credit score (e.g., removing inaccurate information, settling an old debt).

Am I paying for something I'm not going to use? Annual fees are becoming rarer every year (with the exception of some rewards cards). If you don't use the account, it's probably not worth it to pay to play -- or spend money for a small credit bump.

Will it give me peace of mind? Unused lines of credit can offer some security against emergencies, such as job loss, a major fender bender, or a tummy tuck. If it helps you sleep at night knowing that you could cover a large unexpected bill, go ahead and write a thank-you note to your lender. Then put your cards in the closet right next to the other thoughtful but rarely used gifts you've received.

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