At one time in your life, you have likely noticed a boost in the amount of available credit on your credit card. While a credit limit increase may not have been something that you asked for or even wanted, it means that your card issuer thinks you are an above-average borrower.
But what if you took out a new credit card and the issuing company started you off with a fairly low credit limit? What if that limit wasn’t raised after the first year? What should your credit limit be? Should you ask for an increase? The answer to the last question is yes, and there are several good reasons why.
Key Takeaways
- Increasing a credit card limit lowers your credit utilization ratio, which boosts your credit score.
- It can be a better choice than taking out a new credit card, which shortens your credit history and decreases your credit score.
- When requesting a limit increase, make sure that you have an established credit history in good standing.
Increase Your Credit Score
When you increase your amount of total available credit, it lowers your credit utilization ratio. This is also known as your credit utilization rate. This is one of the factors that FICO takes into account when determining your credit score, and having a high credit utilization ratio can have a negative impact.
For example, let’s assume that you started with a credit limit of $1,000 and regularly have $800 charged onto the card—that means your credit utilization is at 80%. Now, let’s assume that you asked for a credit limit increase and now have a maximum of $5,000. If you are still charging $800 each month, then your credit utilization is now 16%.
As you can see, receiving a credit limit increase lowers your credit utilization ratio and will help your overall credit score over the long term—but only if your spending doesn’t balloon in tandem with the credit limit increase. If you increase your spending and max out the card at the new limit, then your credit utilization ratio will go right back up and affect your score negatively. Most credit experts recommend keeping this percentage at 30% or below.
One thing to consider: When you request the increase in your credit limit, the issuer may do a hard credit inquiry, which will give you a short-term two- to five-point credit score decrease. However, if the issuer automatically gives you an increase, then there is no hard inquiry.
Benefits of Credit Limit Increase vs. New Card
Anyone who is looking to increase their available credit probably wants the ability to spend more with the card. This could be for several different reasons. You may want to put more of your everyday spending on the card to earn rewards. Maybe you have a big upcoming purchase that you want to use the card for and have budgeted to pay it off over time.
If you need extra credit, then you have two options. You can work to get an increased credit limit on the current card, or you can apply for a new card. While getting a new card might be attractive because of the sign-up bonus that it offers, it might not be the best choice for you. Every time you get a new card, your average length of credit decreases. Because length of credit makes up 15% of your credit score, you could see a short-term decrease in your FICO score.
The next time you are looking to add more available credit, you may be better off forgoing a new card and asking for a credit limit increase on an existing card.
How to Ask for a Credit Limit Increase
Now that you have decided to ask for a credit limit increase, you need to figure out how exactly you are going to ask for it—and hopefully reduce your chances of being turned down.
The timing of your request is going to be a big factor and will also play a role in how high your credit limit will be. Consider how long the account has been open. If you recently received the credit card, then you may want to establish some history with the account before asking for an increase. Also, it’s probably not the best time to ask for an increase if you have been bad at paying your bill on time or are currently behind on your payments. Make sure that you establish a good track record for paying your bill by its due date before making your request.
Once you have a credit history that will make the issuer smile, it is time to go ahead and call the number on the back of your card. Be prepared: They are probably going to ask you a lot of personal questions about your current employment and income. They will also ask you to explain why you need an increase in credit limit. Be honest with them, but also use this as an opportunity to make yourself look good. Point out that you have a high FICO score or are a longtime cardholder. Card issuers understand that there are a lot of other companies out there; as long as you are a good borrower, they want to keep you with them and not lose your business to someone else.
Should You Increase Your Credit Limit?
Increasing your credit limit can have its advantages. The biggest one is that it can help reduce your credit utilization ratio (as long as your spending stays the same), which will help boost your credit score. Figure out the best time for putting in your request, then go for it.
