Let’s explore some of the important factors about credit limits that everyone could benefit from knowing, starting with the basics. A credit limit (also called “credit line”) is the maximum spending amount set by your credit card company. It’s based on your credit score, along with other financial information.
A credit-limit increase raises that spending amount, allowing for larger purchases and a higher credit card balance each month. Depending on circumstances, that can be good or bad – or both!
Does requesting a credit limit increase for your credit card hurt your credit score?
Quick answer: it depends. If your credit card company does a soft inquiry, it won’t hurt your credit score at all. Soft inquiries are a limited type of credit report that gives just enough information to help lenders make decisions. Credit card issuers don’t need your permission to do soft inquiries to decide, for example, whether they should prequalify you for a new account.
But if the credit card company does a hard inquiry, your FICO® score (the most common credit score in use) could drop 5 to 10 points. Hard inquiries seek a full credit history, which lenders use as a factor in deciding whether to lend you money. They can affect credit reports for two years or so. However, lenders need your permission to do a hard credit inquiry, so you’ll know when it happens.
If your FICO® score is near 850, the maximum, a few points won’t make much difference. But if your score is lower, a 10-point reduction might hurt your chances for a credit line increase. Before asking for a higher credit limit, consider calling your credit card issuer to find out what kind of inquiry they’ll do if you request a credit increase.
On the bright side, if your credit limit increase request is approved, your credit score could increase, negating any small dings from hard inquiries.
What if my credit limit is raised without asking me?
If you have a good credit history, your card issuer may increase your credit limit without asking – usually when you have a very good credit score. And there won’t be any hits on your score — any credit check they do will be a soft inquiry. If you aren’t interested in a credit limit increase, you can always have the card issuer roll it back.
Is it good to increase credit card limits?
Done the right way, increasing your credit limit is a good thing. If done poorly, your credit score may suffer. Here’s why.
A FICO® score looks at five factors: on-time payments (35%); credit utilization (30%); how long you have had credit (15%); the amount of new credit (10%); and the mix of credit you have (10%). That second factor, credit utilization, is related to your credit limit and accounts for almost a third of your score. It might sound complex, but it’s easy to understand.
Say you have a $1,000 credit limit, and you carry a $300 balance: that’s a 30% credit-utilization ratio. Experts recommend staying below 30% for the total of your combined credit.
If your credit line increases and the account is immediately charged close to the maximum, your utilization ratio might rise well above 30%. In this scenario, a higher limit might eventually hurt your credit.
The advantage of a credit increase is how it can lower credit utilization. If your $1,000 limit gets bumped to $2,000, your $300 balance means a 15% utilization ratio. (That’s half the rate it had been.) That lower ratio looks good to a credit bureau.
By maintaining a responsible spending level — and staying below 30% utilization — future credit reports will reward you with higher scores. In the long run, that could help you get lower rates on new loans. And credit card companies might eventually reward you with automatic credit-limit increases.
How do I ask for an increase?
That’s a good question, but you first may want to ask, “Is this a good time to request a credit increase?” Let’s recap how to answer that question.
Here are some good times to consider asking for a credit line increase:
- When your credit score is at its highest.
- When you’ve had a recent raise, or a promotion with a higher salary.
- After paying off a loan or other
- When you’ve had your account for over six months.
And here are some not-so-good times to consider asking:
- You’ve just requested an increase elsewhere.
- Your employment status has changed due to job loss or lower pay.
- You’ve assumed new debt.
- You have missed payments, have had a loan default, or have been contacted by a collections agency.
- Your credit history is too short.
- Your credit score is low for any reason.
If you find yourself in one (or more) of these situations, start working to correct them. Once you’ve done everything you can to improve your credit score, and before putting in a request for an increased credit limit, ask your card issuer if they will do a soft inquiry and tell you what they find. After all, you don’t want to apply for something if you know you won’t qualify.
Once you feel it’s time to ask for an increase, you can often do an online request. Just log in to your account and look for a button or tab labeled, “requesting a limit increase.”
You can also call the lender’s customer service number (usually printed on credit cards and bills). If you have questions, or an unusual financial situation, talking to someone by phone may be the better choice.
There’s another possible benefit to calling instead of doing an online application: You can ask if you might avoid a hard inquiry by accepting a lower increase in your limit. Lenders sometimes make a decision with only a soft inquiry and the additional information you supply.
Whichever way you apply for a credit line increase, the process should be the same. Your issuer will want updates on your annual income, monthly mortgage or rent payment, employment information, current address, and contact info. Once you provide all that, they’ll make a decision — sometimes right away, sometimes in a day or two.
You might come out the other side with a credit limit increase and a higher score to boot!