MyFICO chart

Dear Credit Card Adviser,
I always pay my credit card balance in full before my due date, but I always use my credit limit up to 90 percent. Is this fine? My credit has been adjusted from $250 to $750 one-and-a-half years ago. Till now I still have the same credit limit. What is a way to increase my limit?
— Janne

Dear Janne,
Paying your credit card balance in full but using most of your credit limit every month can actually hurt your credit score. In that sense, your spending habits aren’t “fine.” You don’t get extra points for paying in full, even though it’s financially smart to do so. The score relies on information in your credit report, which doesn’t indicate that you’ve paid off the balance. What it does show are your monthly balances as reported by creditors.

Despite your habit of paying in full, the monthly reported balance on your credit report may not be zero. The amount on your report will reflect the account balance at the time the lender supplied it to the credit bureaus. If your statement balance gets reported, then your credit report will show that you’ve used 90 percent of your available credit. The higher the reported balance is in relation to the limit, the worse the impact on your score.

That’s because how much you owe on your accounts makes up 30 percent of your FICO credit score, the industry standard. The usage of available credit on revolving accounts, or utilization, is an important factor in this category. Maxing out a card, which you are nearly doing, can knock a 680 FICO score down 10 to 30 points.

Elements of your credit score

You’ll need a good credit score if you want another card with a more generous credit limit or an increase to your current limit. Improve your score by charging less to your credit card. Keep paying off the balance to avoid getting into debt.

It actually won’t take long to erase the damage caused from high balances. Only the most recent balance factors into the utilization, so once you start putting fewer purchases on credit, your score should rise. As a realistic goal, shoot for a monthly balance no greater than 30 percent of the limit. Lower than that is even better.

Review your credit as well. Trying to increase your score without knowing where it is in the first place is like trying to improve your golf swing while blindfolded. First check your credit report through, the centralized source for free credit reports under federal law, and review it for errors that could be penalizing your score. Then use the information from it to calculate your FICO score range for free, or pay for your real score at or another score provider.

Besides a good score, you also need income or assets to prove you can handle a roomier credit limit. A new federal law known as the the Credit Card Accountability, Responsibility and Disclosure Act, or CARD Act, of 2009 requires issuers to consider the applicant’s “ability to make the required payments under the terms of the account” before granting a higher credit limit or new account to an applicant.

To determine ability to pay, issuers must consider the person’s ratio of debt obligations to assets, the debt-to-income ratio or the income the consumer would have after paying the debts. The issuer may rely on information provided by you or your credit report.

You didn’t provide details about your credit score, so I don’t know how likely you are to qualify for a higher-limit card. Generally, low-limit cards like the one you have are designed for people with poor or limited credit history. Lighter use of your card should boost your score, and that may help you upgrade to a better card. Good luck!

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