Is there a downside to increasing the credit limit?

A higher credit limit provides the opportunity to use debt for multiple purposes, but there is also the risk of repaying it along with interest. Raising the credit limit does come with potential disadvantages. It offers a false sense of security under the pretext of extended spending power in the form of a higher credit limit. Here are the main downsides of increasing credit limit:

• Additional debt – With a higher credit limit there is an opportunity to spend more money. This could result in a higher credit utilisation ratio which can harm the chances of sourcing additional credit in the future. It can also deter the chances of using a credit transfer facility in the future.
• Interest burden – If you do not pay your balance in full every month, you may end up paying some amount of interest. With a credit limit increase, there are higher chances that you won't be able to repay your dues in full. This results in higher interest charges.
• New credit – If you have a good credit score, you can easily apply for a new credit card or personal loan. However, adding new credit can have some drawbacks. Firstly, a new credit line affects your score in the short run. You may also rely too heavily on your credit cards once you have new credit.

Raising your credit limit can have many advantages. If you are being offered one, make sure that you get all of the necessary information from the credit card issuer before going for it. You should be able to handle it well to make the most of it.