What are the Pros and Cons of a Low Limit Credit Card?

Despite the fact that many people get into financial trouble with credit cards, most can agree that having a good credit rating is important. One way to build credit history is to acquire and use at least one credit card responsibly, and starting with a low limit credit card can be a good idea. Low balances are usually easier to pay back on time, and there is no temptation to purchase expensive items when the limit is not high enough to afford them. Therefore, many people are comfortable starting out with a low limit credit card. On the other hand, it is easy to reach the limit when it is low, creating a high debt-to-credit ratio.

Those with no credit history will likely encounter some issues getting a regular credit card with a moderate limit, so seeking a low limit credit card to start with can be a good idea. Many people are worried about abusing their credit card by purchasing items they do not need, resulting in a high balance that is difficult to pay off. The good news about low limit credit cards is that they do not allow users to end up with overwhelmingly high balances, which means they are more likely to be able to pay off the card. Putting everyday necessities like gasoline and groceries on this kind of card and then paying them off each month is quite feasible. Purchasing big ticket items that are not necessary, such as televisions, is typically not possible on a low limit credit card, which can reduce the chances of getting into debt.

One unfortunate detail when it comes to credit is that a high debt-to-credit ratio can hurt the overall score. This means that keeping a high balance that is close to the limit is not recommended, though it is quite easy to do depending on how low the limit is. Of courser, if there is no credit history to begin with, keeping any balance on a low limit credit card is still better than not having a card at all. The best way to circumvent this con of a low credit limit is to either pay off the balance monthly, or keep a low balance at all times.

A low limit credit card is often recommended for students, those rebuilding their credit score after bankruptcy, and those who cannot afford to acquire and pay off high balances. It should be remembered that this kind of card is just a start. Once it is clear that the cardholder can regularly make payments and stay under the credit limit, it is okay to request a credit limit increase. Indeed, the limit may even increase automatically, over time.