Increasing borrowing power with credit cards

Credit cards are a good way to increase the card holder’s power to borrow money. There are two ways in which this is done, one directly and one indirectly.

Credit cards lend money to a person without the need for security. Essentially the credit card provider will loan a sum up to a certain credit limit, based upon the company’s assessment of the person’s creditworthiness. A person can hold and use more than one credit card and can rapidly receive a large line of credit with a reasonably small amount of effort, directly raising the card holder’s borrowing power.

However, this is a very bad way to get a cash loan. The credit card company will happily provide the card holder with a cash advance, but at an interest rate that will not only be higher than that of a normal unsecured loan or home loan, but will also be higher than other non-cash balances on the credit card. As well, only a small proportion of the credit limit will be given to the card holder in the form of cash. Most credit cards have some sort of daily limit for cash advances as a fraud prevention measure, although not for the direct purchase of goods or services.

It should be remembered that just because different card providers are used to increase the card holder’s borrowing power, this does not mean the different cards won’t know what’s going on. As a person increases their number of cards, they will start to find it harder to borrow money or be approved for yet another card. This may also happen if a large number of credit cards are applied for in a short time frame.

Besides using more than one credit card, it’s also possible to increase one’s borrowing power by raising the credit limit on an individual card. The credit card provider can be called and asked to raise the card’s existing limit. Most credit card providers will be happy to oblige, if the card holder’s credit rating is acceptable.

Credit ratings are another way in which credit cards can increase a person’s borrowing power, although this time the effect is indirect. A credit rating is affected not only by the credit cards a person has, but also by the way in which the credit card debt is handled. A record of consistently repaying credit card debt will stand a person in good stead, and charging then quickly repaying a card’s balance can be an effective way to improve a credit rating when the need arises to stretch for even more borrowing power, with larger loans such as home loans.