Increasing your credit limit is pretty straightforward, provided your account with the card issuer is in good standing, and you aren’t overutilizing your credit. Although having lines of credit or open accounts can improve your credit score, when you have too many – and your balances are too high – the opposite is true. While increasing your limit is simple enough, you should make sure you’re aware of the possible implications of doing so.
What Is a Credit Limit?
A credit limit is the maximum amount of credit, or money, that a bank or other financial institution will extend to customers, if they prove creditworthy. For instance, if you apply for a credit card, and are given a maximum credit limit of $5,000, then that means you’re able to charge or spend up to this amount on your card. However, be careful. If you go over this limit, expect fees or penalties and possibly a negative reporting to the credit bureaus should you not pay it off in a timely manner. Before determining your credit limit, banks will analyze various aspects of your situation, such as your credit score, employment history, whether you rent or own your home, your income and your past history of repaying debt.
How to Increase Credit Limit
If you want to increase your credit limit, simply call the customer service number found on the back of your card to speak to a representative. You may be required to update your information like current income and current employer’s information. Even though you already have a card with a particular credit card company, it will need to reassess your creditworthiness if you want a credit limit increase. If you cannot complete this request over the phone, the customer service agent will be able to further instruct you. Also, depending on the credit card company, you may be able to make a credit limit request online. It’s worth noting, regardless of how you complete your request for a credit limit increase, your credit card company might want to pull a new credit report.
Do Credit Limit Increase Requests Affect Credit Score?
Sometimes a card issuer needs more information before it can make a decision on your request for a credit limit increase.This could be done in the form of a soft inquiry. A soft inquiry has no bearing on your credit score. But, if the company needs to dig a little deeper, it may conduct a hard inquiry, which can impact your credit score. Before requesting the increase, call your credit card issuer and make sure you understand their policy.
Good Credit Habits
When you’re planning to ask for a credit limit increase, you want to keep your credit as clean as possible. A card issuer is more likely to grant your request for an increase if you have shown you’re responsible with your finances. A low credit utilization ratio – the total credit available to you in relation to the amount you’ve used – is a key factor in determining whether or not you will get your increase. If you are maxed out on your credit cards, or much above the recommended 30 percent utilization, you may be denied. A credit limit increase can help lower your utilization ratio, however, if you are granted your request.
For instance, if you have $5,000 in total available credit, with a balance of $2,500, your credit utilization ratio is 50 percent – meaning you have utilized half of the credit that was made available to you. However, if you receive a credit limit increase of $2,000, your new total available credit would then be $7,000, for a utilization ratio of 35.7 percent based on a balance of $2,500. While this is above the recommended 30 percent utilization ratio for maintaining good credit, it is lower than than previous 50 percent, which is a definite red flag for lenders or creditors.
- Credit limit - Wikipedia
- GOBankingRates: 8 Tips to Increase Your Credit Limit
- Capital One: Increase Credit Limit
- CardRates: 6 Expert Tip -- Increase Your Credit Limit (Get Approved Now)
- Capital One: Does A Credit Limit Increase Affect My Credit Score?
- Wells Fargo: Improve Your Credit Score with Good Credit Habits
- MyFico. "Credit Checks: What are credit inquiries and how do they affect your FICO Score?" Accessed Nov. 25, 2019.
Tara Thomas is a Los Angeles-based writer and avid world traveler. Her articles appear in various online publications, including Sapling, PocketSense, Zacks, Livestrong, Modern Mom and SF Gate. Thomas has a Bachelor of Science in marine biology from California State University, Long Beach and spent 10 years as a mortgage consultant.