You have been receiving constant calls from your credit provider, offering to increase your credit limit. You jump for joy thinking of the shopping you could do with that available credit.

Wait.

Before you get excited, here is what you should do before accepting that limit.

1. Ask the creditors to do a full financial analysis before they increase your limit

When doing a credit analysis, creditors check if the customer will be able to honour the debt.  Dali Nyongwana, a franchise principal from Creative Concept Financial Services, says a credit limit increase should be treated as a new application. This means that a customer needs to produce bank statements and payslips of the last three months to ensure that they can afford the increase.

The franchise principal adds that the creditor needs to know if there have been changes in the income and expenses of the customer. This will help the customer avoid getting into debt they cannot afford.

2. Ask your lenders to explain the benefits and disadvantages of a high credit limit

Having access to a high credit limit can come with many benefits. For instance, the impact it has on your credit score; the larger purchases you can make and how helpful it is in cases of emergency.

“Having a high credit limit can improve your credit if you use your credit wisely and you are making the repayments on time,” says Nyongwana.

A high credit limit gives you a chance to show how responsible you are with your credit. For instance; not using all the available credit is a sign of a responsible customer.

However, Nyongwana says creditors must be honest when explaining the advantages of having such a limit and the customer must be given time to think about them.

These benefits come with certain disadvantages. For instance; an increased limit increases the risk of high interest rates if the customer defaults on their monthly payments. This leads to more debt.

3. Make sure you are not being baited into more debt

Creditors’ aim is to make a profit and the more debt they issue, the more money they make. Nyongwana says many lenders only have their own interests at heart when offering credit to their customers. He says when they see that the client has been honouring their debt, they offer them more credit. That may lead to an increase in spending by the customer.

According to him customers are sometimes lured into credit that they cannot afford. He says lenders can make the mistake of thinking that when a customer affords their current instalments, they will also afford future ones.

“The fact that a customer is honouring their repayment agreement doesn’t mean that if the credit limit is increased they will still be able to keep up with the repayments,” says Nyongwana.

4. Check if your limit has not been increased already

According to the franchise principal sometimes creditors increase the customer’s credit limit without asking them. This is because of the confidence that the lenders have in their customers. He says it is up to the customer to use their credit responsibly. If that is not possible, they can ask the creditor to decrease their limit.

He concluded that only when the customer has done all the above should they accept an increased credit limit.