How a High Limit Card Can Improve Your Credit Score

A high-limit credit card can come in handy when you need to cover large unexpected expenses, like replacing appliances or paying a medical emergency bill. And with a higher spending limit, you may have more opportunities to earn more rewards.

But how does a high limit card affect your credit? Getting a high-limit credit card or increasing the credit limit on your current card can positively impact your credit score. Here are three ways to boost your account with a high credit limit.

1. Reduced use of credit

The credit utilization rate is the percentage of your available credit that you use and is an important factor making up 30% of your FICO credit score.

The general rule of thumb is to keep your credit utilization rate below 30%. After all, the lower the better. According to Experian, consumers with an exceptional FICO credit score have an average credit utilization rate of 5.7%.

Keep in mind that when using credit, each card is considered individually and collectively (if you have more than one revolving credit account). Check out our Loan Usage Calculator to calculate your current ratio.

A high-limit credit card can have a positive effect on your credit score by lowering your credit utilization rate if you don’t accumulate more debt. For example, if your credit card balance is $1,000, a $2,000 limit will give you a high utilization rate of 50%. But the $5,000 limit will make your credit use only 20%, and the $10,000 limit will lower it even further to 10%.

FICO does not disclose exactly how many points you can earn or lose based on credit usage alone, and the total impact depends on your overall credit profile. But high limit cards can help in the right circumstances.

For example, A.J. Salim, owner of a private tutoring company in Houston, Texas, achieved a 40-point increase in credit score after adding high limit credit cards to his collection of business credit cards. He said that he had no negative points in his credit history.

“I have seen a high credit rating, especially when the credit usage is below the 30% mark,” Salim said.

2. Improved credit balance

Adding a high limit card can boost your credit score by improving your credit balance. The credit mix refers to the different types of credit accounts you have, including credit cards, mortgages, auto loans, and student loans, and makes up 10% of your FICO credit score.

“People who don’t have credit cards are generally considered riskier than people who use credit cards responsibly,” said Tommy Lee, senior director at FICO. “Having credit cards and installment loans with a good credit history will help your FICO scores.”

And, if you already have a high limit card, you can still benefit indirectly. By keeping credit usage low, you are more likely to improve your credit score. Consequently, lenders are more likely to approve you for an auto loan, personal loan, or mortgage in the future, thereby improving your credit structure.

Lenders like to see that you can manage different types of loans, including installment loans and revolving loans like credit cards.

3. Accelerate debt reduction

You may consider getting a credit card for balance transfers with a credit limit high enough to transfer other high-interest debts. With a good credit history, you can qualify for a balance transfer card with an initial rate of low or 0% per annum for a certain period, with some cards up to 21 months.

Transferring your high-interest debt to one high-limit credit card can positively impact your credit score if you take steps to pay off your debt. You can pay off your debt much faster if you pay little or no interest, and the promotion period can give you enough time to pay off a large part or all of the balance.

After you transfer your balances to a balance transfer card, make sure you don’t accumulate new debt on your released credit cards. This can offset any increase in credit score that may result from your debt reduction efforts.

bottom line

A high-limit credit card may boost your credit score, but applying for one will likely result in a drastic reduction in your credit. Tough requests may cause a slight temporary drop in your credit score, but they will completely disappear from your report after two years.

You can get the benefits of a high limit credit card without applying for a new card. If you already have a credit card, you can request an increase in your credit limit. (Keep in mind that your credit card company may conduct a thorough review of your credit report when considering your request.)