How To Increase Your Credit Limit (Without Hurting Your Score) | Credit card
A credit card doesn’t have to be the piece of plastic you hide in the bottom of your wallet for emergencies only. In fact, with the proliferation of cards that allow you to earn rewards in cash or airline miles, your credit card can be an incredible financial tool. But if you opened your account when you were fresh out of college or when your credit score wasn’t that good, you might not have a very high spending limit.
The good news is that you can request an increase in your credit limit. But you might be wondering, “Is asking for a credit boost hurting my score?” The good news: probably not. Before you apply, however, learn how to raise your limit without lowering your credit score.
How is the credit limit determined?
Your credit limit is the maximum amount of money you can borrow at one time. Card issuers determine your limit size based on a few factors.
For one, your payment history will play an important role. If you’ve paid all your bills on time in the past, you’ll likely get a higher limit than if you’ve missed multiple payments. Issuers will also consider how many accounts you have opened and how much credit you have versus how much you owe. Your income is also important because you need to be able to pay your monthly payments.
Ultimately, the exact reasoning behind your credit limit is up to the individual credit card company. However, if your credit score is in good shape and you have demonstrated a history of responsible borrowing, you will likely receive a higher limit.
How to Request a Line of Credit Increase
If you want to increase your credit limit, all you have to do is usually ask. “Creditors generally don’t mind increasing lines of credit,” says Mike Sullivan, personal finance consultant and former director of education at Take Charge America, a national credit counseling and debt management agency. non-profit debt. “They actually like it if they believe you’re going to use it and pay for it.” Here are some ways to do it.
Many card issuers make it easy to request a credit limit increase. All you have to do is log in to your online account and access the map services page. Here you can find an option to request a credit limit increase. If so, select this option and enter the information you are prompted to update, such as your annual income, employment status, and monthly housing payment. In many cases, you will immediately receive a response telling you if your limit has increased.
If there is no option to request a raise online, you can instead call the number on the back of your card and make your request to a customer service representative. Again, the issuer may ask for basic financial details, so have this information ready. You can get a response immediately or wait up to approximately 30 days.
Wait for this to happen automatically
If you’re ready for a credit limit increase, you may find that your card issuer has already granted you one. It’s not uncommon for issuers to periodically increase credit limits as a reward for regular but responsible spending and for paying your bill on time. However, most major card issuers won’t automatically increase your credit limit until you have at least six to 12 months of on-time payments and haven’t exceeded your credit limit in the past. , according to Rod Griffin, director of public education for credit bureau Experian.
If you are denied a raise, consider opening a new card instead. “Different lenders have different policies. One may try to limit credit while another wants to extend it,” Sullivan explains. By opening a new card and keeping your balance to a minimum, you can enjoy the same benefits as increasing the limit of an existing card. Remember that applying for a new credit card will result in a firm credit investigation.
How Your Credit Limit Affects Your Overall Credit Score
Your credit limit alone doesn’t affect your score, but how you use it may. “Your credit limit represents the amount of available credit you have,” says Sullivan. “By itself, that doesn’t have much of an impact, but the amount you owe represents your usage, and that can matter a lot.”
Your credit usage is calculated by dividing the total amount of revolving credit you owe by the total amount of credit extended to you. For example, if you have a credit card with a limit of $1,000 and you have a balance of $100, your credit utilization rate is 10%. However, if you charge an additional $500, your usage increases to 60%.
Credit scores take into account both the usage rate of each credit card and the total usage of your credit across all accounts.
Griffin says, “A good rule of thumb is to always keep your utilization rate below 30%. The credit utilization rate shows that you are using less of your available credit.”
Griffin says credit score models will interpret low usage as meaning you’re doing a good job of managing your credit and controlling spending. And given that it makes up 30% of your overall FICO score, credit usage is something to take seriously.
How to Increase Credit Limit and Improve Your Credit Score
So, is asking for a credit limit increase hurting your score? Although people are often wary of the ways they can accidentally hurt their credit score, increasing your credit limit is actually an easy way to improve your score. Here’s how:
- Decrease your use of credit. One of the biggest benefits of a credit limit increase is that it can have an instant positive impact on your credit. “Increasing your credit limit immediately decreases your usage,” Sullivan says. For example, suppose you increased your credit card limit from $1,000 to $2,000 and left your balance of $600 untouched; your usage would drop from 60% to 30%. This could have a significant positive effect on your score.
- Maintain a low balance. Of course, this strategy doesn’t work if your balance increases with your credit limit. Griffin says, “For some people, higher credit limits might represent the temptation to spend more.” This means you won’t enjoy the benefits of a higher credit limit. In fact, you might end up increasing your usage rate if you’re not careful. “In general, the best way to improve your utilization rate is to pay off your credit card balance and then keep it as low as possible,” says Griffin.
- Avoid too many difficult requests. While a credit limit increase is generally good for your credit, requesting one could temporarily lower your score. This is because credit card issuers will sometimes put a lot of pressure on your credit to make sure you meet their standards for the upper limit. Hard credit pulls typically lower your score by up to five points and remain on your credit report for two years.
Pitfalls to avoid when applying for a line of credit increase
In theory, increasing your credit limit should have an overall positive effect on your credit score. But the health of your credit depends on how you manage your accounts. Make sure you don’t undo the progress you’ve made by making these mistakes with your credit:
- Missing payments. “The worst thing you can do to your credit score is miss a payment,” Sullivan says. Accounting for 35% of your FICO score, payment history is the most important credit score factor. Missing a single payment on an invoice can significantly lower your score.
- Apply too many times. If you’ve been quick to ask to increase your credit card limits, Sullivan recommends slowing down and making deliberate decisions about changes in your financial situation. Too many changes at once, such as multiple credit applications in a short period of time, could hurt your score. Only apply for new credit when you really need it.
- Facilitate overspending. When it comes to increasing your credit limit, first consider your overall financial situation. Griffin says: “For example, if you know you’re a big spender, it might not be a good idea to ask for a raise because of the risk of racking up more debt and damaging your credit scores. .”
On the other hand, if you have a good handle on your finances and are able to keep balances low, increasing your credit limit could be the key to opening up your financial opportunities.