Your credit limit is more important than you realize. Increasing your credit limit on a regular basis is an excellent way to both increase your purchasing power and — if you handle your credit responsibly — boost your credit score.
A 2016 Bankrate Money Pulse survey found that nearly 8 in 10 U.S. credit card holders who have asked for a higher credit limit have been approved. But few people take advantage of this potentially easy way to raise their credit score. In fact, only 28% of cardholders have ever asked for a credit limit increase. “I think a lot of people don’t realize that they’re allowed to do something like that,” says John Ulzheimer, a nationally recognized credit expert who formerly worked at credit companies FICO and Equifax.
Since it’s relatively easy to request a credit limit increase, more cardholders should consider making this credit-boosting move — so here’s what you need to know about increasing your credit limit.
How to increase the credit limit on your credit card
There are three basic ways to increase the credit limit on your credit card: online, over the phone or through a lender invitation.
Most cardholders should be able to quickly request a credit limit increase through an online bank or credit account. Look through the menu options until you find something like “credit limit increase” or “credit line increase.” Then, answer a few simple questions — you might be asked to provide information about your income or your monthly rent/mortgage payment, for example. You might also be asked how much additional credit you want, so have a number in mind.
Some lenders grant credit limit increases without performing the kind of “hard pull” credit inquiry that can affect your credit score. Other lenders will do a hard pull on your credit before approving your credit limit increase. If a hard pull is involved, you’ll know in advance and have the option to decline your request if you’re not ready to take the temporary hit to your credit score.
If you’d rather not request a credit limit increase online, you can call your credit card’s customer service number and request a credit limit increase over the phone. Be prepared to provide the same basic information: income, how much additional credit you’re looking for, and so on. These credit limit requests may also include a hard pull to your credit, depending on the lender.
“If you’re a good customer, it is almost a guarantee that you’re going to get some credit line increase,” Ulzheimer says. “You’re in a position that they don’t want to lose you.”
You may also be able to get a credit limit increase without having to request one. Lenders regularly invite cardholders to increase their credit limit, so keep your eye out for an email or online account message asking if you would be interested in additional credit. In some cases, you’ll need to provide basic information (like income) before you can be approved; in other cases, you’ll receive a preapproved offer.
Benefits of a higher credit limit
There are many benefits to getting a higher credit limit — including the possibility of a higher credit score.
There are five different factors that contribute to your FICO credit score. Your credit utilization ratio makes up 30 percent of your score and represents the amount of credit you have versus the amount of credit you’re currently using. If you have $10,000 in available credit and are carrying a $2,500 balance, for example, your credit utilization ratio is 25 percent. That’s good, because you want to keep your credit utilization ratio below 30 percent whenever possible — and it’s a lot easier to keep your credit utilization ratio low if you have a higher credit limit.
Asking your credit card company to allow you to borrow more could also make your future borrowing less expensive. If your credit score increases as a result of your increased credit limit, you might qualify for lower interest rates on everything from credit cards to mortgages to car loans.
Plus, a higher credit limit gives you more purchasing power — and if you have a top rewards credit card, the opportunity to earn more rewards on those purchases. You’ll want to pay off those purchases as quickly as possible to ensure you maintain a low credit utilization ratio, but having more credit available to you gives you more opportunities to use that credit to your advantage.
The survey was conducted April 14-17, 2016, by Princeton Survey Research Associates International and included responses from 1,000 adults living in the continental United States. The margin of error is plus or minus 3.7 percentage points.
What improves your chances of being approved for more credit?
If you’re hoping to get approved for a credit limit increase, it helps to have the kind of financial profile that suggests you’ll be able to pay off your credit cards in a timely fashion. There’s a reason why many lenders ask for both your income and your rent/mortgage payment before approving a credit limit increase request — they want to know that you aren’t asking for additional credit because you’re having trouble making ends meet.
“What goes into that credit decision is we look at the account behavior, payment history, overall utilization levels, the traditional things about how long you’ve had this account and how you’ve handled this account,” says Brian King, Vice President and mortgage advisor at J.P. Morgan Private Bank. Card companies want to confirm that you’ll be likely to pay back any money you borrow, based on your income, assets and current obligations.
Interestingly, age also seems to be a factor in some lenders’ decisions — perhaps because lenders view more experienced credit holders as more likely to be able to handle the responsibility of an increased credit line. Bankrate’s Money Pulse survey found that:
- Cardholders aged 30 and older were much more likely to be granted a higher limit (81%) than the youngest survey respondents, aged 18 to 29 (46%).
- Only 60% of cardholders with an annual household income below $30,000 were approved for a higher limit versus 84% of cardholders with an annual household income of $30,000 or higher.
How is your credit limit determined?
Your credit limit on an individual credit card is determined in one of two ways. Either the credit card comes with a preset credit limit, or the lender offers you a credit limit based on your credit history and credit score.
This is why building a good credit history is so important. As you continue to add new lines of credit, lenders will look at how you’ve used your previous credit opportunities before deciding whether to give you the requested line of credit, how much credit to offer you and what kind of interest rate you’ll receive.
It’s also another reason why it’s a good idea for you to request a credit limit increase. Future lenders may consider your current credit limits when determining what credit limit to offer you, and proving that you can handle an increased credit limit without maxing out your cards or falling behind on payments is one way to help you get the best credit offers available.
So go ahead and ask — and then, once you get your increased credit limit, make sure you use that credit responsibly.