Do Credit Card Companies Have to Run a Hard Inquiry to Approve a Credit Increase?

Do Credit Card Companies Have to Run a Hard Inquiry to Approve a Credit Increase?
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A "hard inquiry" occurs when a lender accesses your credit report to evaluate whether to offer you credit. A bank's decision to check your credit for an increase in your credit card limit is up to the bank. Some creditors periodically increase limits for good borrowers without a check. If you specifically request a limit increase, a check is more likely. While a hard inquiry might briefly hurt your credit rating, the long-term effects are more important.

Why Banks Check

An October 2013 "MSN Money" article noted that banks historically get leery when borrowers want a limit increase, especially if they see you are near the limit at the time of the request. Lenders are in the business of loaning money. If you can repay on a higher limit, the bank is happy to increase the limit. When you call and ask for an increase, the lender may review your account before deciding. Part of the review is often a credit check to ensure you aren't a desperate borrower looking for more money you can't repay.

Credit Inquiry Impact

A hard inquiry usually lowers your credit rating a few points, according to a December 2010 Q&A on the Experian website. Multiple inquiries in a short period can have a more significant effect. Despite this initial hit, an increased borrowing limit may not only offset the drop but ultimately lead to a higher score. Credit utilization, or the percentage of your limit in use, accounts for 30 percent of your FICO credit score. Raising the card limit means you have more you can borrow and thus a lower percentage in use.

Consider Your Motives

People typically increase credit limits for a few basic reasons. The desperate borrower is the most worrisome for the creditor. Raising a limit on a card you have maxed out can cause a few problems. You could end up with a higher total debt balance, and ultimately a higher credit utilization, which harms your rating even more than the inquiry. Some borrowers simply ask for a limit increase, because the existing limit is low and the request is for emergency purposes. Credit-savvy borrowers sometimes ask for the increase just to improve their credit utilization score.

Rate Increase Strategies

When you ask for a rate increase, it is best to ask for a modest amount of $500 to $1,000, according to the "MSN Money" article. A modest request on a card that isn't maxed out may cause less concern on the part of the creditor. It is generally better to ask for a limit increase on a long-running account, or you might simply get a new card instead. If you are a responsible borrower, the bank often bumps your limit after six to 12 months anyway.