I received a letter in the mail from one of my credit cards that told me I was eligible for few upgrades. I immediately called the number to see what they were offering.
I was told that I could get one of the following options:
- 3 points per dollar for every dollar spent
- $300 credit limit increase
- 0% balance transfers until July 2009.
I opted to take the $300 cash increase and I will explain why below. I have not been using this card for purchases because I get 5% cash back with another card already. Getting 3% would not benefit me in any way because I am already at a higher cash back award with another card.
I also decided against getting the balance transfer because I have already used this particular card for balance transfers in the past. I only have about $350 available credit left on this card so it would not make sense for me to get a balance transfer (which includes fees) on that small amount.
I took the credit limit increase because this is the one that will benefit me the most in the future. I can always use a higher credit limit on this card because it is one of my longest standing cards so it has a great credit history on it.
Now I do not plan to use the extra credit for purchases because that will just bring my utilization ratio to an uglier number. Instead I am using the ‘extra’ $300 as a cushion that lowers the rate of utilization on that card. I am paying off the current balance transfer that I did on that particular card and it is just nice to have that money.
So should I regard that $300 as income for the month? Can I now say I am $300 richer….or do I just have the potential to get $300 deeper into debt?
What card are you getting 5% on?
Best Wishes,
D4L
I would never think of a card as money! It is just the potential to go deeper in debt…although I’m guessing $300 isn’t going to make or break anyone. That said, I would have done the same thing just to reduce my overall utilization!
I’ve always not been sure about Credit Cards. i think they can be a great tool for making purchases and a way to build good credit, but it has its pitfalls as well. Thanks for your post, it was insightful.
Ryan Thorson
http://hackalife.com
@ D4L
I am getting the 5% on Discover. They have a rewards program where every three months you get 5% on certain items. Right now it is gas and groceries and that is where all my money is going anyway.
@ Twiggers
In my younger days I would have said that I was $300 richer…but now that I am wiser I see it as the potential to get into more trouble. 🙂
@ Ryan
Glad you enjoyed the post. You have to be really careful with credit cards because the card companies will use ANY excuse to jack up your rates.
I wouldn’t say richer or more potential for debt. I would consider it as a lower debt to limit percent! 🙂
Definitely $300 deeper in debt. But it is good for your credit score the lower the percent of your balance you carry over. So the extra $300 is good in the event of an emergency, and for your credit.
I really like the 3 points for every dollar. If you spend like 15k a year, you would get 45k in points. Depending on the program it would make it very easy to get free tickets and other gadgets.
@ NoBrainerDeals
Yes the 3 points per dollar spent would be nice…but since I already have a card that gives me 3% cash back, with 5% on things like gas..this would not be the best deal for me.
Also, I am not interested in getting free tickets and items right now….I prefer the cash back which I can use to pay off other debts. 🙂
Are you still happy with your decision to go with the card with the $300 limit increase?
@ Myers Briggs
I just got the increase so it is too early to tell the effects..but I am happy with the choice I made.
I agreed with Twiggers comment until the last sentence lol.
Can you explain the ‘overall utilization’? I don’t think I’ve ever heard that term and don’t really understand it.
It kind of sounds like a way to trick one’s self into thinking you are in less debt, by having more available credit?
@ Shawn
Utilization is simply the ratio of the level of debt you have to the amount of available credit.
If you have one card with $100 credit limit but you carry a balance of $50 then your utilization is 50%. This is high!
If you have a card with a $500 limit and carry a balance of $100 then your utilization is 20%. This is good.
The credit bureaus use this to help determine your credit score so that is why a lot of pf bloggers talk about it.
It is not a way for me to trick myself into thinking I have less debt….I am not THAT crazy. It is simply based on a formula that the credit bureaus use.
This is why your credit score drops when you take a balance transfer. Even though it might be at 0% and be great deal, all the bureau sees is that the amount used to the available balance is high.
I took the credit limit increase to help my utilization because I have a 0% balance transfer that I did on that card which made my utilization high.
Hrm, so its for the credit bureaus to trick themselves into thinking you have less debt accumulated? LOL
I get your point but it just seems silly. A person still owes the same amount, regardless of the upper end credit limit. I don’t see how it helps anything other than that silly credit score hehe 🙂
You’re definitely not $300 richer. But you do have the potential to become $300+ poorer than you already are. At least that’s how I see it.
ALL HAIL THE ALMIGHTY FICO SCORE!!!
“To your knees peasants!” – FICO
@ Striker
LOL!
I have Fidelity’s card which I really like. 2% back on all purchases. The amount you get back goes into your trading account which I suppose some people would not like but it’s a great supplemental way for me to invest for retirement, etc.