Knowing your credit limit and staying on top of how much you spend in relation to that limit is one of the most important factors in staying out of debt and keeping a healthy credit score.
But what can you do when your credit limit no longer meets your needs? Credit card issuers are often more than willing to increase the limit on any cards you already own. A 2017 survey from CreditCards.com found that 89 percent of Americans who asked received an increased credit limit.
There are a few things you should determine beforehand to ensure you’re prepared to get the increase you want, though, as well as potential consequences you should keep in mind.
Why do you need an increase?
It’s always best to pay your balances in full each month to avoid carrying a balance. Make sure your request to increase your available credit won’t encourage you to spend over your budget, taking on debt.
It may be helpful to increase your line of credit to fund a single large purchase or if you find yourself using one card more than the others in your wallet and want the credit limit for that card to fall more in line with your spending.
If you’re considering a credit line increase, though, it may also be a good time to evaluate whether you’re getting the best value from your card. If you’re using the card for a single big purchase or to keep up with your everyday spending, does its benefits align best with the purchases you make? You may find more value in a new card with a zero percent introductory interest offer or targeted rewards instead.
On the other hand, if a credit line increase will only enable an increase in regular spending, resulting in more debt long-term, you should reconsider asking for more credit.
Impact on your credit score
In many cases, increasing your available credit will actually have a positive effect on your credit score.
One of the most influential factors in your credit score is your credit utilization rate, or the amount of revolving credit you use in relation to the amount you have available, both for each individual card you own and as an aggregate of all your credit lines. The lower this rate is, the better for your score. It’s generally recommended to keep your utilization rate at around 10 percent.
Taking on a higher credit limit, either by increasing the limit on your current cards or applying for a new card, can help bring your ratio down, as long as you can resist the urge to spend more once you get the additional credit.
For example, if you have one card with a $5,000 limit and you charge $2,000 to it, that’s a utilization rate of 40 percent, which can lower your credit score. If your issuer bumps your limit up to $10,000, though and you charge the same $2,000 balance, you’d only be using 20 percent of your overall credit. That may still be a bit high for some scoring models, but will help in getting your utilization rate down and your score up.
Know what you want before asking
You should at least be familiar with how much your current credit limit is before getting on the phone with your issuer, but it also helps to have a goal in mind so you can be specific with the representative about how much of an increase you’d like.
Not only can this help ensure you get enough of an increase, but it can also help to keep you from getting a higher limit than you need, especially if too much credit could put you at risk of going into debt.
Do your research
Issuers may make a hard pull on your credit report when you request a credit line increase. As a result, it’s probably in your best interest to only request an increase on one card at a time and to hold off if you plan to apply for a loan anytime soon.
You should also check your own credit report before asking to determine how good your chances are of being granted the increase. Make sure you have a healthy credit score, there are no errors on your report and that you don’t have a recent history of late or missed payments that could jeopardize your chances of success.
Hard inquiries can temporarily lower your credit score, so if you don’t think your credit is up to par or you’re looking to take out a personal loan or mortgage in the near future, you should wait to request your credit limit increase (or submit any new credit applications).
You may get an automatic increase
If you don’t have a pressing need for an increase to your line of credit and you develop a history of timely payments, you may find your issuer offering you an increase automatically.
Credit card issuers regularly review their cardholders’ credit to ensure that they haven’t become riskier borrowers. Often, issuers will reward cardholders who show a history of timely payments with an increase in their overall credit limit, in order to encourage more spending.
In the same way you shouldn’t ask for an increase simply to increase your spending levels in a way that could encourage debt, you shouldn’t let an automatic credit limit increase give you the green light to overspend more than you should either.
Develop a flexible budget that works with your spending habits so you don’t spend more than you’re able to pay off, even after you gain access to additional credit.