November 18, 2021
Consumer Credit Expert
If you want the ability to spend more money with a particular card, you’ll need to ask for a credit limit increase. We’ll explain how to do just that – and how to decide if it’s the right choice.
How does a credit card limit increase work?
When you open a credit card, it comes with a total credit limit dictating the maximum amount you can charge on the card. If you want to spend more than that limit, you’ll have to ask the credit card company for a credit limit increase.
Let’s say you currently have a credit card with a $10,000 credit limit. You plan to remodel your kitchen and need to charge $15,000 worth of materials on your card. You call the credit card company and ask for a $5,000 increase. They agree, allowing you to charge up to $15,000 in purchases on your card.
A credit limit increase is usually permanent. However, they do reserve the right to reduce your limit if you don’t use the card for an extended period of time, or if you default on any obligation that reports to your credit report.
Can a credit limit increase improve your credit?
The second most important factor in a credit score is your credit utilization, or how much credit you’re currently using compared to the total credit limit. Credit scoring models will calculate the credit utilization for each credit card and the total credit utilization among all active credit cards.The maximum credit utilization you should have to maintain a good credit score is 30%, but most experts recommend a utilization of 10% or less to maximize your credit score.If you request a credit limit increase, that can reduce your utilization and improve your credit score.
For example, let’s say you have a credit card with a $3,000 current balance and a $9,000 total credit limit. Your credit utilization is 33%. You call and ask the credit card company to increase the credit limit to $12,000. They agree, cutting your credit utilization to 25%.
Can a credit limit increase harm your credit?
Before a credit card provider agrees to increase your credit limit, they may ask for a pay stub or proof of income and a credit check to verify that you’re responsible enough to carry a higher limit. This may result in a hard inquiry on your credit report, which can decrease your score by a few points. A hard inquiry stays on your credit report for two years, but only impacts your score for one year.
If the card provider says they’ll do a hard pull and you’re about to apply for a mortgage or other major loan, you should avoid asking for the credit limit increase until the loan is finalized. The hard inquiry could decrease your score and result in a higher interest rate.
Not all credit cards will conduct a credit check to approve you for a higher credit limit. You can call the provider and ask if they will do a soft or hard pull on your credit. If they’ll only do a soft pull or not conduct a credit check at all, then asking for a credit limit increase will not have a negative impact on your score.
If your credit limit increase is denied, you’ll receive a letter explaining why. Some reasons could include having a lower credit score, your current utilization, inadequate income, or not using the card enough to justify a higher limit. If possible, try to improve those negative factors and apply again in a few months.
If you are approved for a credit limit increase and the card provider doesn’t run a hard inquiry, you could set a reminder every 6 months to call and ask for a limit increase. If you don’t change your spending habits, this will result in your credit utilization gradually decreasing over time which will improve your credit score.
The Bottom Line
Increasing your credit card limit can increase your credit score, but it can also tempt you into charging more on your credit card. Make sure you stay within your budget and only use the increase to improve your score.
If you have any questions or need help improving your credit, schedule a free credit analysis with a Financial Renovation Solutions credit consultant today.