If you have credit cards with low credit limits, you may be interested in increasing your credit limit. In this article, we’ll talk about why your credit limit is important, reasons to increase your credit limit, when and how to request a credit line increase, and more. Keep reading for everything you need to know about how to increase your credit limit.
The obvious reason why you should care about your credit limit is that it controls the amount you can spend on that particular credit card. But beyond that, your credit limit also indirectly affects your credit score.
Although credit limit itself is not a factor in credit scores, it plays a role in your credit utilization ratio, which is an important part of your credit score. In fact, utilization makes up about 30% of a FICO score.
Your credit utilization ratio is the amount of debt you owe divided by your credit limit, typically expressed as a percentage. For example, if your credit card has a $10,000 credit limit and you owe $2,000 on it, your utilization on that card is 20% ($2,000 / $10,000 x 100% = 20%).
The above example is an individual utilization ratio since it is the utilization ratio of a single card. Your overall utilization ratio is similar, but it includes all of your revolving debt added together divided by the total credit limit of all of your revolving accounts. Both individual and overall utilization are accounted for in your credit score.
Why is utilization such an important part of one’s credit score? High utilization means high risk for lenders. If you are using most or all of your available credit, this indicates that you may be overextended and you might have trouble paying off your debts. Therefore, high utilization lowers your credit score because it means you are more likely to default.
On the other hand, low utilization means you are not using very much of your available credit, which indicates to lenders that you are at low risk of defaulting. Therefore, keeping your utilization low is a good thing for your credit score.
To bring this all back to your credit limit, remember that your credit limit affects your utilization ratio.
Consider an example in which someone owes $500 on a $1,000 limit credit card. Their utilization is 50%, which is high enough to potentially have a negative impact on their score. But if they were to increase their credit limit to $2,000, their utilization would go down to 25% ($500 / $2,000 x 100% = 25%), which could help out their credit score.
Essentially, increasing your credit limit helps lower your utilization ratio, which can benefit your credit health.
Plus, it gives you more spending power if you ever need it to make a big purchase.
One important caveat: this strategy only works if you do not run up the balance on your credit cards. If increasing your credit limit means you will just continue to spend up to your credit limit and get in more debt, then it’s probably not a good idea.
There are a few different ways to go about raising your credit limit.
Lenders will often automatically bump up your credit limit after you have had the credit card for a certain amount of time, provided you have used it responsibly and paid on time every month. However, you usually have to wait at least six months after opening a card to be considered for a credit limit increase.
If you haven’t gotten an automatic credit limit increase, you can request one. You can do this over the phone or on the credit card issuer’s website.
Generally, if you apply for a credit line increase online, this will result in a hard credit pull. However, if you call your bank and talk to a representative, you may be able to get approved for an increase with only a soft pull, depending on the situation.
When you request a credit line increase, you should be ready to provide your total annual household income, your employment status, and the amount of your monthly rent or mortgage payment. Credit card issuers typically state that you can include income from someone else if that person’s income is regularly used to pay your expenses.
Your credit card issuer may ask you to explain why you need or deserve a credit line increase, so be prepared to explain the reason for your request. They may also inquire about how much you spend on credit cards each month.
Another option is to transfer some or all of your credit limit from another credit card to the card you want to extend. However, with this method, the two cards need to be from the same bank, and not all banks allow customers to do this.
If your bank does allow credit limit transfers, you could open a new credit card with them, take advantage of any signup bonuses offered, and then transfer the limit to your older card.
If transferring is not an option, opening up a new credit card with any bank will still increase your overall credit limit and utilization ratio, assuming you do not run up a balance on the card.
It’s best to wait until the right time to ask for a credit line increase. Just like applying for a new credit card or loan, you want your credit and your income to be in good shape when you make the request.
Here are some examples of potentially good times to request an increased credit limit:
In these situations, you might want to hold off on requesting a credit limit increase:
There is no hard-and-fast rule when it comes to how much of an increase to ask for, but here are some ideas:
Depending on the lender and the amount that you request, the credit card issuer may conduct a soft or hard inquiry on your credit. They want to see what your credit report looks like before taking the risk of granting you even more credit.
Check with your credit card issuer to see if requesting a credit limit increase will trigger a soft or hard inquiry.
As we discussed in “Are Inquiries Really Killing Your Credit?” a hard pull could reduce your credit score by a few points, but it’s not the end of the world. As long as you keep your inquiries to a minimum, it shouldn’t pose much of a problem. It’s when you have several recent inquiries on your credit report that you start to look like you are desperate for credit and you may get denied by lenders.
However, as we discussed earlier, the more significant potential impact to your credit score is the decrease in your utilization ratio if you do get approved for a credit line increase. Since credit utilization makes up about 30% of your credit score, improving that factor could benefit your score and would likely outweigh the impact of a hard inquiry.
Besides the impact on your credit score of potentially getting a hard inquiry, there are a few other drawbacks to consider when increasing your credit limit.
Some credit card issuers may charge sneaky fees to increase your credit limit. If you don’t want to pay a fee, make sure to check the terms of your card before requesting a credit line increase.
In addition, having access to more credit could encourage you to spend more, which could end up doing more harm than good to your credit score and to your overall financial health. You can read more about this in “Is There Such a Thing as Too Much Credit?”
Have you tried requesting a credit limit increase before? Which of these methods do you plan to try next? Let us know in the comments below!