Life is full of surprises — some good and some bad. Waking up one day to a credit limit increase that you didn’t apply for can be a good or bad surprise depending on how you look at it.

Let’s examine why credit card issuers increase credit limits without input from the cardholder and what the fallout (good and bad) of an increase can be.

What is a credit limit increase?

Your credit limit is the total amount you’re allowed to charge to your credit card at once. A credit limit includes any new purchases, old purchases that haven’t been paid off and any balance transfers. Your annual fee is also charged against your credit limit.

For example, if you have a $10,000 credit limit, that means you can have a balance of up to $10,000 on your credit card. Once you reach $10,000 you won’t be allowed to spend anymore. Generally, if you try to make a charge that will put you past your credit limit, your transaction will be declined.

How is your credit limit determined?

Credit card issuers use two different methods to determine credit limits. Some credit cards come with a preset credit limit. The other option is that the lender looks at your credit score and credit history to try to gauge whether or not you’re a responsible borrower and what type of credit limit and interest rates you can qualify for. The stronger your credit history is, the higher your limit will likely be.

Why did my issuer increase my credit without asking?

Circling back to unprompted credit limit increases, why do credit card issuers do this without asking? If you pay your bill on time each month and have overall managed your credit card responsibly, there may come a day when your credit card company alerts you that your credit limit has been increased. In some cases, they may offer you an increase and give you an opportunity to accept or deny it, but sometimes they do this without asking for your input.

One of the main reasons that credit card issuers do this is to help increase their customer retention and to encourage responsible borrowers to spend more on their credit cards each month.

But why did they choose you? This may happen because you are considered a responsible customer. It can also happen if you report an increase in income. In some cases, credit card issuers have a built-in path for customers that eventually leads to a higher credit limit after being a customer for a while.

If you want to know why your credit limit increased, don’t be afraid to ask why it happened so you can better understand how it could happen again in the future.

Benefits of a credit card limit increase

It can be surprising when your credit limit is increased without your prompting it. On the bright side, there are a lot of benefits that come along with a credit limit increase that may work out in your favor in the end.

Improved credit utilization

One of the most important factors when determining your credit score is your credit utilization ratio. Your credit utilization ratio represents how much credit you have available to you versus how much you’re using.

This ratio accounts for 30 percent of your score and the lower this ratio is, the better. When your credit limit is increased, your credit utilization ratio drops by default. Just be careful not to spend up a storm or your ratio will rise again.

More purchasing power

If you have some big purchases on the horizon, and have a plan to pay for them, having a higher credit limit can give you more purchasing power. The more you use your credit card, the more rewards you can gain. Just make sure you can afford to pay your bill on time before you make any purchases so you earn rewards without going into debt.

On the flip side, if you have credit card debt to pay down on other cards or are working on building your savings, having an increased credit limit may create spending temptations that distract you from your goals. Keep a close eye on your spending if you receive an automatic increase.

Better terms in the future

Having a higher credit limit, and a lower credit utilization ratio, can lead to having a better credit score. The better your credit score is, the better terms and interest rates you’ll qualify for in the future. Using a higher credit limit to strengthen your score can pay off big time down the road.

Soft credit inquiries

Generally, an automatic increase involves only a soft inquiry (an issuer requires your consent to make a hard pull on your credit). Soft pulls don’t impact your credit. That being said, an automatic credit limit update from a lender is a great way to increase your amount of available credit without dinging your credit score by applying for more credit.

What if I didn’t want an increase?

An automatic credit limit increase can come as a surprise but for the most part, it should be a good one. Your credit score may improve thanks to having a lower credit utilization ratio. Plus, you’ll be able to charge more if you ever need to (you shouldn’t just because you can) and you can collect the cardholder rewards you otherwise miss out on when you pay in cash.

If you’re struggling with overspending and think the new limit will just encourage more credit usage, you can call the issuer to request they reset your limit to its previous amount. Given the likely positive boost to your credit (and potential equal opposite reaction to closing it), it’s worth considering some other options first. For example, consider stashing away your credit card to make it harder to use on purchases you can’t afford.

To get ahead of automatic credit limit increases, give your credit card issuer a call and request it never increase your credit limit without your consent. Follow up on this conversation in writing so you have a written record of the agreement.

The bottom line

Overall, automatic credit card limit increases are a good thing if you can manage the increased spending limit. Your credit score can benefit, you’ll have more spending power should you need it and managing a higher limit responsibly can help you work toward better rates and terms in the future. If you’re against receiving automatic credit limit increases, however, don’t be afraid to tell your lender not to do them.