Card limits can hit you hard when you overspend at christmas

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INCREASING credit card limits or signing up to a new card can be tempting at this time of year, but experts are warning shoppers to think twice before doing either.

Limits on plastic can start as low as $500. Financial services firm Canstars database shows about one in five cards will approve limits as low as this.

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This small amount wont suit many shoppers, as the most common credit limit for a platinum card is $6000, however for those consumers who are unaware, there are many cards with no defined maximum limits at all.

Experts warn that choosing a card with a large limit could a slippery slope towards debt woe, when shoppers allow themselves to make large purchases that can bite hard later.
It can also hamper ones ability to gain other lines of credit down the track, says Moneysmarts senior executive leader of financial literacy Miles Larbey.

If you are thinking about increasing your credit limit or taking out a new credit card, the thing to remember is that when assessing your credit limit lenders will look at the total amount of the limit of that card, not just the balance of that card,’ Larbey says.

It can impact your ability to borrow money down the track.

For instance if you have a $10,000 limit on your card, lenders will assess this as if you have a $10,000 debt when you apply for any other lines of credit, regardless of how much you owe on the card.

Latest Reserve Bank of Australia statistics show that as of October, Australians owed a whopping $51.4 billion on credit cards and more than $31.9 billion is accruing interest.

Larbey warns that credit cards should not be seen as free money and cardholders should take their card limits very seriously.

He says consumers can easily get swamped by buying presents and booking holidays in the coming weeks and not worry about the cost until bills strike in late January or early February.

Canstar research manager Mitchell Watson also says credit limits can do you harm without you even realising and its critical not to have multiple forms of plastic because it can give you unnecessary financial grief.

Having multiple credit cards, store cards, interest-free facilities and other personal loans with high limits or existing debt can mean that you have less spare cash available to meet repayments on a new loan and may not be approved for the loan you want,’ he says.